Morning Petrospective – August 3, 2010
il prices broke out decisively to the upside on Monday, breaking above resistance at $79.69, $80.00, $80.40 and $80.82. It is what the bulls needed to do to generate a convincing signal that this market intends to move higher. By settling at $81.34, above all of those resistance levels, the bulls were able to negate last Tuesday’s technical failure and they broke decisively over all the resistance generated since the end of May.
Technically, prices now have a sound reason to advance on the major highs, the highs for 2010, at $87.19. It was from that high that we had a technical failure in early May, which effectively set us upon a course of steep decline and then consolidation. Prices have now broken out of their trading range.
It could not have come at a less likely time, in a number of ways. Last week’s inventory figures showed the US sitting on generous supplies of crude oil and refined products, and economic statistics since early May have been almost all either anemic or downright disappointing. For weeks, economic data have done little to allay fears that we may be headed into a double-dip recession. Some figures have had ‘silver linings’ or ‘underpinnings of hope,’ but few have been unequivocally bullish.
Monday’s manufacturing sector data seems to have turned everything around, and is being credited with renewing “investors’ faith in the global recovery,” according to Dow Jones. Equities certainly seem to have been convinced, and the DJIA gained 208.44 to 10,674.38 in Monday’s trading. A number of other economically-sensitive commodities also benefited from this set of figures.
July manufacturing indices in the US, UK and in the euro-zone all came in stronger than had been anticipated. And these figures seem to have caught a number of people leaning the wrong way, especially in oil after we had what looked like a technical failure a week ago. It now seems to have been just the latest in a long line of ‘fake-outs’ and traps in the oil complex. The US dollar sank to its lowest level since May 4th and copper and other ‘industrial’ commodities had strong days.
The US ISM manufacturing index actually dropped in July, to 55.5, from 56.2 in June. But, it was much less of a decline than had been feared and was a sign that US manufacturing was stronger than believed. Capital Economics (CE) pointed out on Monday afternoon that “Even after July’s dip, it is still consistent with annualized GDP growth of around 4%,” which is more than most analysts have been talking about lately. The index also drew strength from its employment index, which led CE to comment that “labor market conditions are better than most realize.” Oil, copper and equities were convinced. And equities may be the key to rebuilding flagging confidence over the near term. Of course, we do need to be aware that new orders fell to their lowest level since June, 2009, in the latest set of figures. Analysts had expected worse news, though.
And construction spending unexpectedly increased in June. There was a 0.1% increase in expenditures that once again caught market participants leaning the wrong way, especially after a revised 1.0% decline in May. Economists had been predicting a decline of 0.5%, so any gain had to be seen as being constructive.
The bottom line seems to have been that diminished expectations have not been realized, and that represents a kind of good news.
In other oil-related news, a tropical depression has reportedly formed in the middle of the Atlantic Ocean, according to the National Hurricane Center. This will give us something to watch and may keep sellers at bay.
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
- The US gov't team estimating the BP oilspill flow rate now says it went as high as 62,000 b/d before slowing to an average of 53,000 b/d.
- Australian junior Nexus denied reports of a potential $437 mil takeover offer by Shell that sent its share price soaring.
- Indonesia's Pertamina is expected to import close to 8 mil barrels of 88 RON gasoline in Sep, the highest amount in a month this year.
- UK-based EnQuest has boosted its North Sea reserves, agreeing to buy Stratic Energy for $132 million in a stock and debt deal.
- US House approves oil spill-related energy legislation
Bentek Energy
- Storage Analytic Report - All Regions Are Back to Injection Mode for the Week Ending August 5
- Supply/Demand Balance Analytic Report - Supply Declines and Demand Jumps as Northeast Heats Up
- Canadian Observer - Exports Increase as AECO Spreads Widen
- Texas Observer - Texas Demand Passes 10 Bcf/d
Bloomberg
- Oil Advances to Three-Month High Near $82 on Dollar, Equities Pare Losses
- Tropical Storm Colin Forms as Winds Reach 40 Miles per Hour, Center Says
- China's Oil Demand May Continue to Slow in Third Quarter as Economy Cools
- Nexus Energy Jumps the Most Since October 2008 on Speculation of Shell Bid
- Mitsui's MOEX Unit Gets $480 Million Oil-Spill Bill From BP, Won't Pay Yet
- Investors See Petrobras Peril of Ignoring BP Oil Drilling Spill
- Gasoil Margins Rise to Highest in Week on Recovery, Crude Oil Gains
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