Morning Petrospective – August 9, 2010       

he oil complex was lower again on Friday, making it three days lower in a row, Curiously, this activity caps a week in which oil prices had early technical breakouts to the upside. That is especially true of crude oil prices, which broke over every identifiable resistance level on Monday, and then managed to spend most of the week still above those levels.

Friday’s big mover was the monthly unemployment figure released by the Labor Department. The latest report showed nonfarm payrolls down 131,000, with only 71,000 private sector jobs created. The government let go 143,000 census workers. June’s figures were revised lower, with payrolls falling 221,000 that month, well above the 125,000 jobs lost that the initial report estimated.

So far this year, the US economy has added fewer than 100,000 jobs over the first seven months of the year, which is not enough to bring unemployment down. That calculus put pressure on a number of markets, and oil prices fell back from the highs reached earlier in the week.

Crude oil prices ended the week at $80.70, still above the technical resistance that had been at $79.38-$79.69, the psychologically important $80-even, and additional selling at $80.40. It did settle below an important figure on the September charts at $80.82, but we can say that prices have fallen back into support or to levels from which they initially broke to the upside, earlier in the week.

Refined products did not have as strong a week. Heating oil broke above 217.50 and had a day confirming the break, but it finished at 214.72, which leaves it all to be done again next week. Gasoline prices broke to 219.93 and followed up with a 219.80 settle, which gave us a breakout over 219.30 with a confirmation, but the final settlement at 211.27 was not particularly bullish.

The euro made new gains against the US dollar on Friday. The chart below shows the dollar plunging to its lowest level in months, against the euro. This could be a reason for oil prices to advance next week.

The DJIA was the resilient market on Friday, with losses of 21.42 points to finish at 10,653.56. That is actually a fairly good result for a market that could have fallen much more dramatically after the latest employment numbers. The US economy has, over the years, been powered by consumers, who have accounted for as much as 70% of economic activity in the US. The most simple calculus of all is that a lack of jobs equals a lack of consumer discretionary spending. That means that the US economy will be essentially a six-piston engine running on just two valves until more jobs are created.

The week’s DOE report was important on Wednesday, but it has been a long time since the weekly supply and demand figures cast especially long shadows. To our eyes, the numbers that still stand out are these: Crude oil stocks are now 61.1 million barrels (20.58%) higher than they were two years ago. Cushing stocks are now more than double, or 19.1 million barrels (102.14%) higher than two years ago. Distillate stocks are 36.4 million barrels (27.31%) higher than two years ago with heating oil stocks now 16.6 million barrels (49.55%) above those levels. Gasoline stocks are 13.8 million barrels (6.60%) higher than they were in 2008.

If this market ever does return to fundamentals, we could be in for a very steep decline in prices. If anyone had told us that inventories would be where they are compared to two years earlier, and that unemployment was holding stubbornly immobile at 9.5%, we certainly would not have assigned a number of more than $80 a barrel for crude oil. We do not believe we would have settled on a number over $40, and we would not have been surprised if someone from the future (visting us two years ago) had described current factors and told us crude was trading in the $20’s. Opec has done an amazing job of changing the conversation.

     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

• PetroChina will open 119 projects to $88 bil in private investment, including operations in oil exploration, refining, sales: Beijing Times.
• Cost of the response to Macondo oilspill now totals about $6.1 billion: BP. Says Aug 15 now most likely date for relief well interception.

Bentek Energy

• Power Burn Analytic Report - Northeast Demand Read to Retrace Last Week's Burn Levels
• Gulf Coast Production Analytic Report - New Tropical Cyclone Appears Likely in the Atlantic
• Supply/Demand Balance Analytic Report - High Northeast Demand Expected to Return This Week
• Northeast Observer - Total Northeast Demand to Remain Above Normal Throughout Week
• Storage Analytic Report - Final Midpoint for the Week Ended Aug. 5 Is a Built of 31 Bcf

Bloomberg

• Oil Rises First Time in Four Days on Optimism Over U.S. Economic Recovery
• Hedge Funds Raise Bets on Rising Oil Price to 13-Week High
• BP's Pressure Tests Indicate Cement Plug on Macondo Oil Well Is Effective
• Atlantic Low Pressure Area Has 70% Chance of Becoming Cyclone in 48 Hours
• Iran Sanctions Make China, Russia Winners While Reliance Loses
• Pemex Plans to Increase Offshore Oil Drilling Capacity to 60 Rigs From 52
• Icahn Wagered $1 Billion on Energy Stocks During BP Oil Spill

Technical Recap

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