Morning Petrospective – July 30, 2010
he oil complex was higher on Thursday, despite a lack of any readily attributable developments. There was a fire in a crude distillation unit at a refinery (52,000 bpd) in Cheyenne, Wyoming, but few market observers seem to believe that to have played a major role in the market’s strength. More observers assigned Thursday’s rise to weakness in the US dollar, specifically against the euro. That’s fine, as far as reasons go, except that the euro has not really been a major contributor to oil price moves for almost a month now. Equities, or global stock markets, have much more readily been assigned daily influence over oil prices over the last three or four weeks. The DJIA lost 30.72 to finish at 10,467.16 yesterday.
Things do seem to be improving in Europe more than in the US, but why that should necessarily be better for oil prices is not readily apparent. The US uses far more oil than Europe does, so we have to believe that any commensurate slippage in the value of the US dollar might be more than used up by the loss of American demand. If the dollar is losing ground because the US recovery is not proceeding as well as the European recovery, one would have to believe that the US would use less oil as a result than Europe might be able to make up through today’s currency fluctuation. But that was the story they’re sticking to, as the saying goes.
Traders and investors were reportedly getting mentally prepared for Friday’s critical GDP figure. There are many who expect the figure to confirm what a number of other indicators have been telling us for a while now – that the economic recovery has slowed. Few expect the number to show the recovery has come off the rails, but it is possible that it will be well behind (or better than) the figures we have been seeing recently. The figures will reflect second quarter Gross Domestic Product, so they will already be almost a month behind the figures we see daily, now. If the GDP report is less robust than expected – the consensus is calling for a growth rate of 2.5% - it could be a sign that the economic recovery had thrown the brakes on well before most of us were aware.
Thursday’s economic numbers did little to shed any real light on the current state of the recovery. Economic sentiment in the euro-zone in July reportedly improved to its highest level in more than two years. That helped the euro against the US dollar. Muddling perceptions, though, here, this week’s unemployment report showed initial claims down 11,000 to 457,000 for the week ended July 24th. At the same time, though, the previous week’s rate was revised upward from 464,000 to 468,000, giving us an effective reduction in jobless claims of just 7,000. It will take a very long time to reduce unemployment at that rate. The four-week average was down 4,500 to 452,500.
Oil prices remain remarkably resilient despite heavy inventories, demand that has improved but has been essentially stuck at new improved levels for a while without getting any better, a technical failure to advance and a month’s worth of disappointing economic statistics. In any model we could construct, oil prices should be lower than they are now. We are not sure who is buying, although it must be fund-based buying, or why. Nevertheless, we have a market that is having a hard time moving lower – or we have a market artificially propped up at high prices and just ready to collapse. Either way, the upside does seem limited. A break and settle over $80 would bring a lot of short-covering, though.
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.
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Platts oil
- Japan's oil products sales fell to their lowest level since 1988 in June. The country consumed some 2.99 mil b/d in June, down 4.7% on year.
- S Korea has finally decided to hike gas prices after Kogas suffered yet another quarterly loss. Domestic gas prices will go up 4.9% from Sep.
- UK’s Dana, which is being urged to accept a takeover approach by S Korea's KNOC, makes a second ‘very attractive’ oil find onshore Egypt.
- Nigeria begins training for second batch of 600 ex-oil rebels as part of amnesty program to end years of disruption in oil-rich Niger Delta.
Bentek Energy
- Storage Analytic Report - Preliminary Midpoint Down 5 Bcf from Tuesday's First Projection
- Supply/Demand Balance Analytic Report - Lower Demand in Northeast, Midwest Outweighs Small Supply Drop
- Gulf Coast Production Analytic Report - Small Changes in Total Gulf Production Today
- Southeast/Gulf Observer - Weak Demand and Lower Net Spreads Drive Outflows from SE/Gulf Lower
Bloomberg
- Oil Falls, Poised for Weekly Decline, on Weaker Global Economic Concern
- Gulf of Mexico Oil Imports Rise as Floating Storage Wanes: Energy Markets
- China Declares Sovereignty in Southern Sea as U.S. Seeks Role in Disputes
- BP Drilling Ban Would Cost U.S. Jobs, Company Says
- Spain Nearing Accord With Solar Producers on Reducing Subsidies
- Total Reports 72% Increase in Profit After Raising Production
- Sinopec Says BP Declined Its Offer to Buy Some `Good' Assets After Spill
- NTPC Seeks 14.5 Million Tons of Power-Plant Coal in Single Biggest Import
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