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Morning Petrospective – July 9, 2010

July 9 2010, 09:24

Morning Petrospective – July 9, 2010

Oil prices advanced again on Thursday, after this week’s DOE report showed another larger-than-expected drawdown in crude oil stocks. In the process of moving higher, August crude oil prices touched their highest intra-day figure yet in July. It was a second day of gains following six days lower, and it continued to look like a rally more than a genuine advance.

It was, not coincidentally, also a day during which equities were higher. The DJIA and crude have not been moving point-for-point, but they have had similar-sized gains in numbers these last two days. The DJIA gained 120 points while crude gained $1.37/bbl.

The oil complex had been trading higher before the DOE report was released. Traders had been positively impressed by the American Petroleum Institute (API) report out Wednesday evening, because it had shown draws across the board. Even though the two reports are often quite different, the API numbers can provide insights into the DOE report released the following morning. In this case, both reports showed large draws in crude oil stocks.

There were also a number of differences and this week’s DOE figures showed an unexpected build in gasline stocks, along with a smaller-than-expected build in distillate inventories. Taken in conjunction with a four-week average distillate demand figure that was 15.80% higher than the same aggregate average a year ago, the distillate elements of the report were considered to be supportive.

Gasoline prices seem to have come along for the ride, despite a build in stocks and a four-week average demand figure that is up just below 2% against a year ago. That is the best comparison we have seen in months, but it is still a little disappointing for the week reflecting Independence Day, which is a driving icon as far as holidays go. All of those numbers were nonetheless considered bullish.

Of course, there is a missing piece of the puzzle that traders may have cheerfully ignored. Crude oil stocks are 3.14% higher than a year ago, distillate stocks are 0.63% higher and gasoline inventories are 2.95% higher. Last year was nothing special, though. Once one compares existing inventories to a year when we still thought the economy was growing, the picture changes. Compared to two years ago, crude oil stocks are now 21.88% higher, distillate stocks are 30.36% higher and gasoline stocks are 3.59% higher (see Daily Hedger tomorrow morning for more details).

Traders were able to get past the loss of millions of driving commuters and their effect on gasoline demand because of the latest weekly unemployment report, which showed a drop of 21,000 to 454,000 initial claims in the latest week. Well, at least traders got past it for a day. And that is the real problem. A decline of 4.42% from 475,000 people applying for benefits is really trying to drain a swimming pool with a beer stein. Traders and investors were celebrating the fact that it wasn’t a thimble. The National Hurricane Center announced the formation of a tropical depression early Thursday morning. If it becomes a storm, it would be likely to follow the course that Alex did.

FMX Newswire

FMX Newswire is an overnight news summary designed to meet the needs of professional energy traders. The content is to-the point, professional grade and not widely reported in the mainstream media. All sources are professional respected firms and newspapers.

Platts oil

French utility GDF SUEZ has commissioned a 424 MW capacity gas-fired power plant at Fos-sur-Mer in southern France.
UK Brent crude loadings are set to rise to 158,000 b/d in August, up 42,000 b/d from July.
Singapore is keen to buy LNG from Indonesia's Bontang plant in East Kalimantan to feed its planned LNG receiving terminal.
Santos is in talks over tie-ups with other CSG-based LNG projects at Gladstone in eastern Australia.

Bentek Energy