Morning Petrospective – August 5, 2010       

il futures were marginally lower on Wednesday, although signals were mixed again. At the end of the day, higher inventories and a weaker euro were able to out-point other factors in persuading traders to take profits on long holdings in the oil complex.

The Institute of Supply Management (ISM) index of non-manufacturing businesses increased in July to 54.3 from 53.8 in June. Experts had predicted a drop to 53.0. ADP released its early estimate on non-farms payrolls for July, and it estimated that 42,000 jobs were added in July, following an increase of 19,000 in June. Market-watchers had expected a gain of 30,000. Both were better than expected.

It is funny. On Tuesday, we had three disappointing, bearish reports reflecting economic activity. Oil prices rallied to new, recent highs. So, on Wednesday, we get two better-than-expected economic reports, and crude oil prices declined. It makes very little sense. Traders did take into account “sluggish growth in the UK’s services sector,” according to Dow Jones, but traders seem to be a day late sometimes in these markets.

Perhaps making better sense was the fact that the euro was lower yesterday. Since last Thursday, when it was hauled out by its shirt collar and trotted around the headlines for the first time in weeks, the euro has had a reasonably tight correlation with oil prices. It has not been the cozy relationship of high school juniors walking arm in arm to class each day as much as being like two people catching the same bus, while sometimes getting off at different stops, since last Thursday. That has been as tight a relationship asd the oil market has had, though, over the last 10 days.

Prior to then, oil and equities had been all but going steady. For months, the two seemed joined at the hips, and a double-digit increase in the DJIA was often accompanied by a similar gain in crude oil prices; if one gained triple digits, so often would the other. It is just over the last week or 10 days that the two markets have been seen moving in opposite directions.

This week’s DOE report showed a crude oil drawdown of 2.780 million barrels, on expectations for a decline of 1.400 to 1.650 million barrels. Distillate stocks were up 2.170 million barrels, which was more than had been expected (expected up 1.0 to 1.2 million barrels). Gasoline stocks were up 729,000 barrels, and had been forecast to drop 0.400 to a million barrels. That was probably the result of an unexpected increase in refinery utilization, which was up 0.6$, rather than down the 0.5% to 0.6% predicted.

Spread traders were active in the oil complex on Wednesday, and they were selling gasoline most aggressively, buying either crude oil or heating oil futures against those sales. The DOE report was the reason for those moves, with gasoline having the most bearish report, especially with the higher refinery utilization, which will add more output again next week.

Oil prices remained resilient, despite yesterday’s negative settlements in crude oil and gasoline contracts. Even though prices could have finished in positive territory after the 44-point gain in the DJIA (to 10,680.43) and the better-than=expected economic data released, they just as easily could have fallen more on the weaker euro or because of higher oil inventories.

     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

• Reliance Industries' subsidiary, Reliance Marcellus II, has inked a deal to enter into a Marcellus Shale JV with Carrizo Oil & Gas.
• BP remains cautious on Macondo victory, eyes cementing decision.
• Cepsa is operating its Huelva refinery at 90,000 b/d, or 50% of planned new capacity, after Wednesday's fire on a pipeline to a storage tank.
• Buzzard level in North Sea Forties blend back below 30%

Bentek Energy

• Power Burn Analytic Report - U.S. Power Burn Reset's Wednesday's Record Higher
• Gulf Coast Production Analytic Report - A Medium Chance Remains For Remnants of Colin to Become a Cyclone
• Storage Analytic Report - Higher Demand Continues Pushing Injections Lower
• Supply/Demand Balance Analytic Report - U.S. Demand Likely to Outpace Supply Today

Bloomberg

• Oil Falls in New York After Surprise Increase in U.S. Gasoline Stockpiles
• Tropical Storm Colin Remnants Regain Strength Near British Virgin Islands
• Reliance Agrees to Buy 60% Stake in Carrizo's Shale Asset for $392 Million
• BP Swaps Show Dividend Restored 65% Lower in 2011 as Dudley Conserves Cash
• Oil-Futures Contango Collapses as Cushing Supplies Swell
• U.S. Moratorium on Deep-Water Oil Drilling May End Early, Bromwich Says
• Crude Oil to Climb Toward Fibonacci Target of $83.55: Technical Analysis
• Venezuela Pares China Debt With $20 Billion Oil Accord

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