Morning Petrospective – July 29, 2010       

rude oil prices lost roughly half a dollar a barrel yesterday as traders reacted to this week’s Department of Energy (DOE) weekly supply and demand statistics. Demand was steady to better than it was a week ago, but all three major inventory measures were higher – with crude oil stocks up substantially.

If anyone ever wants to look back on this set of figures for the salient features, the crude oil Inventory increase of more than 7.3 million barrels will certainly jump out at them. This came on the shoulders of an increase in crude oil imports of 1.176 million bpd, which had been ‘forecast’ by Tuesday’s API report, which had an increase of 1.670 million bpd.

After the huge build in crude oil inventories, the bigger question may be why oil prices did not drop even more. The end of last week saw crude oil prices try to break above major resistance up to $79.38, only to be halted at $79.42 and then they were stopped at $79.60 on Friday. As we started this new week, prices tried to break $79.60 – and they ultimately did on Tuesday, but they only made it as far as $79.69 before longs started liquidating positions heavily. Locals had bought crude oil futures to push quotes over the initial resistance up to $79.38 and then in an attempt to touch off buy-stops above that level, but once prices had taken four full trading days and had only made it as far as $79.69, the enthusiasm for the long side had dissipated. The traders who had been buying earlier were selling by Tuesday.

By Wednesday, the retreat was in full flight. The Commerce Department reported that durable goods orders had fallen for a second consecutive month in June, giving up 1%. That number was especially disappointing because economists had predicted an average 1.1% gain in orders. This was followed by the Federal Reserve’s “Beige Book,” which indicated that US economic activity had risen only modestly in June. As has been the case with almost all the recently released indicators, Wednesday’s economic reports were disappointing and reinforced the new, prevailing consensus that the recovery – while not yet in a full backslide – has essentially stopped swimming and is just treading water. At least, that is the optimistic view. Others just see a body floating in the water … .

The huge build in crude oil inventories was mitigated by opinions that the movement just represented a precautionary movement of barrels from offshore to onshore facilities ahead of Tropical Storm Bonnie. The combination of heavier imports, along with the lower refinery utilization so typically seen after the July 4^th holiday, was never going to give us the drawdown that everyone expected we would see. The builds in refined products stocks were actually less than the consensus expected, and the decline in refinery utilization could signal the beginning of the end of inventory-building that almost always occurs ahead of the heaviest demand, which is in the fourth quarter.

Four-week total demand came in at 19.385 million bpd, up 215,000 bpd (up 1.15%) on the week and up 642,000 bpd (3.43%) against the same aggregate average seen a year ago. Four-week gasoline demand came in at 9.399 million bpd, up 2.11% on the year, which was 42,000 bpd stronger than the four-week average of 9.357 million bpd and an improvement against the 1.98% increase seen a week ago. Four-week distillate demand was 3.608 million bpd and was up 9.33% against the same average seen in 2009, and that was 12,000 bpd and slightly better than the 9.04% improvement (against 2009) reported a week ago.

     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

• Allen to meet with local officials to discuss Macondo transition.
• Norway's Statoil wants to join $1 billion rapid response system for handling deepwater well blowouts following the Gulf of Mexico oilspill.
• Shell Q2 earnings almost double on year, beating expectations, as it launched wave of asset sales after hitting cost-cutting target early.
• BP in talks with Russian venture TNK-BP on sale of $1 bil of Venezuela oil projects, the UK Times newspaper reports, without citing sources

Bentek Energy

• Gulf Coast Production Analytic Report - A Final Review of Tropical Storm Bonnie
• Power Burn Analytic Report - Power Burn Plummets 25% in the Midwest as Temperatures Decline
• Supply/Demand Balance Analytic Report - Larger Decrease in Demand than Supply Expected Today
• Storage Analytic Report - The West Region Is Back to Injection Mode on Week Ending June 29

Bloomberg

• Crude Oil Rises for First Day in Five, Equities Gain Allay Supply Concern
• Shell Posts Higher Profit on Oil Prices, Production
• Natural-Gas Squeeze Prompts Switch of Fuel in Middle East: Energy Markets
• BP May Sell Venezuela Oil Stakes to Russian TNK-BP Venture
• Jordan to Select Supplier for Country's First Nuclear Reactor by April
• BP's Dudley Targets Riskiest Deepwater Drilling After $32 Billion Blowout

Technical Recap

Crude Options Report / Straddle Runs

NG Options Report

Premium Subscriber  (click here to register):

Volumes & Open Interest

End Of Day Straddles

Settlements