Morning Petrospective – August 10, 2010       

il prices were higher on Monday, after advancing in trading overnight. Traders were handicapping the possibility of the Fed, which meets on Tuesday, finding new forms of “quantitative easing,” a catchall term that generally means finding ways of getting more liquidity into the system or promoting lending or borrowing. In other words, the argument was that things are so bad that the Fed will find a way to make the world better.

Once again, oil prices were living vicariously through equities and the euro. Both were higher on Monday, and there was a rise of 45.19 points to 10,698.75 in the DJIA. As far as the fundamentals go, though, the oil complex continues to ignore factors that only seem to be getting more bearish. At some point, the fundamentals may be important again.

That was clearly not the message being sent yesterday. And yesterday’s advance sums up the proclivity of the oil complex to advance – no matter what. When the economic data was more positive than negative, oil prices increased because economic recovery would certainly lead to heavier energy use. Now that the economic figures are getting worse week after week, the bulls believe that the Fed will be forced to find a way to remedy the situation when it meets on Tuesday. The Fed will find new ways to make money more plentiful, more easily made or loaned, and the economy will recover and energy demand will increase. In fact, at this stage, we cannot imagine any set of numbers that this market will not interpret bullishly. Bullish numbers are bullish and bearish numbers will force the Fed to do something bullish. It makes selling seem dangerous.

That is the bottom line in this market. There is no reason to get short in a market where the field so clearly slopes towards one goal or end-zone. It is not a level playing field at all. Whenever prices advance, it seems that managed money accounts are busy buying, as was the case through last Tuesday. So, we need to ask why they are buying. One clue comes from zero interest rates. The best-heeled and biggest players can borrow money without any cost. They have been borrowing that money and plowing it into commodities. The second clue comes from gold. Gold is four times the price it was seven or eight years ago. And, as a result, we are seeing oil prices at three or four times what they ought to be, based on supply and demand.

We have inventories growing regularly. And now, demand is falling again. Based strictly on supply & demand, oil prices could or should be trading at $20 or maybe $30 a barrel. Because of the assumptions inherent in zero interest rates and gold at $1200, though, oil is flirting with $80 a barrel, in a period of the sloppiest and most bearish supply and demand regimen seen in almost 10 years.

Technically, crude oil prices need to print $83.00 to verify the market’s upward course. Heating oil prices need to print 221.00 and gasoline needs to print 220.00 in order to continue higher. Technically, the oil complex has some decent resistance overhead, but the trends are all pointed higher. Given the dynamics described above, it is difficult to envision a way in which oil prices might go lower for an extended period of time. We do get periodic bouts of risk regurgitation, but they tend not to last that long.

So, we are stuck watching the stock market, the euro, economic data and the Fed.

     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's Rudong and Dalian LNG terminals are expected to start operations in April and June 2011 respectively.
• UK North Sea Brent crude loadings are set to rise in September, but only to 163,667 b/d.
• Russia to monitor upstream, downstream oil with single system.
• Uganda says the Tullow-Heritage oil field deal is still not completed, amid continued wrangling over the associated tax bill.
• Demand for spot ARA propane remains weak

Bentek Energy

• Supply/Demand Balance Analytic Report - High Demand Continues to Suppress Storage Injections
• Gulf Coast Production Analytic Report - Storm in GOM Now Has 50% Probability of Cyclone Development
• Texas Observer – Higher Deliveries to Oasis Tighten the Texas Intrastate Spread

Bloomberg

• Crude Declines on Signs of Slowing Fuel Demand in U.S., China
• Anadarko Debtors Forgive Spill as Bond Frenzy Intensifies: Credit Markets
• Saras Plunge sto Record Low After Profit Falls on Weak Refining Margins
• LNG Storage Off U.A.E. May Equal Six Months of China's Average Purchases
• China's Crude Imports Fall From Record as Slower Economy Curbs Fuel Demand
• Atlantic Hotter Than Before Katrina, Boosting Storm Forecasts
• Commodities to Tumble as Consumer `Blob' Eats Credit: Technical Analysis

Technical Recap

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