Morning Petrospective – August 11, 2010       

he oil complex was under heavy selling pressure for a large part of Tuesday’s trading, but prices rallied towards the end of the session to finish with still significant losses. Equities were lower through most of Tuesday’s session, and the euro was down substantially as well. The double weakness in those two bellwether markets helped push oil prices lower on Tuesday.

Tuesday’s rally came as the Fed decided to add fresh stimulus to the economy, which had been the expectation that had lifted stock prices (equities) and asset prices on Monday. Of course, investors were mixed in their review of the Fed’s choices of stimulus and there was somewhat of a natural letdown once the decision was announced; it always seems so much more potentially supportive before specific steps are announced.

The choice of stimulus the Fed announced was to “reinvest principal from maturing agency mortgage-backed securities into longer-term Treasurys,” according to Dow Jones. And that one statement showing up in an oil report tells us all too potently just how far this complex has drifted from its core factors. We cannot really claim that we thoroughly understand what the move will do to help someone who is looking for work to find a job, or how it will help a business looking to grow to borrow money. The DJIA rallied into positive territory after the announcement, but it ended the day down 54.50at 10,644.25. The news also bolstered the euro, which had been under selling pressure from the start of Tuesday’s trading.

Despite this good news, productivity, which had been one of the strong points in the nation’s quest to build an economic recovery, fell in the second quarter. Employee output per hour decreased at a 0.0% annualized rate and was the first decline since the end of 2008. This helped pressure assets of every stripe.

In news much closer to the supply and demand of oil – and therefore potentially irrelevant in determining its price near-term, the EIA released its monthly short-term energy outlook on Tuesday. World demand is expected to grow by 1.570 million bpd (1.9%) in 2010 to 85.910 million bpd. Chinese oil demand is expected to average 8.970 million bpd, a gain of 650,000 (7.8%) on 2009. Among OECD countries, only the US is expected to show any growth in demand in 2010 or 2011.

Global demand is expected to grow by 1.510 million bpd (1.8%) to 87.42 million bpd. Chinese oil demand is expected to reach 9.530 million bpd in 2011, which would be an increase of 560,000 bpd (6.2%). For this third quarter, global oil demand is calculated at 86.000 million bpd, up 1.44 million bpd (1.7%) from year-ago levels. OECD inventories are expected to remain high through 2011, according to the report.

US oil demand is expected to end a four-year old decline in demand this year, by rising 140,000 bpd (0.7%) to 18.910 million bpd. That represents an increase of 0.4% and 80,000 bpd from last month’s estimates. We are not sure that these estimates will hold through the next few months, though, given recent declines in the weekly figures and a series of disappointing numbers on the economy. We expect demand in the US to end the year very near unchanged against 2009.

The US is expected to use 18.940 million bpd, a gain of 220,000 bpd (1.2%) in this third quarter and it is expected to use 160,000 bpd (0.8%) more oil than thuis year in 2011, when it is expected to use 19.070 million bpd. Gasoline demand is expected to increase by 20,000 bpd in 2010 and by 70,000 bpd in 2011, while distillate demand is seen gaining 50,000 bpd in 2010 and 40,000 bpd in 2011.

This week’s API report showed a drawdown of 2.187 million barrels in crude oil stocks, a draw of 1.536 million barrels in gasoline stocks, and a build of 2.286 million barrels in distillate stocks. Refinery utilization dropped 2.5% to 84.2% and crude oil imports were up 1.601 million bpd to 10.962 million bpd. Implied demand came in at a scorching 9.713 million bpd in gasoline and a decent 4.202 million bpd in distillate. With refineries running less and imports up, the drawdown in crude oil stocks is surprising.

     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

• China's Dalian Port to start operating 18 crude storage tanks with a capacity of 2 mil cu m (12.58 mil barrels) over September 2010-2011.
• A blast on the Kirkuk to Ceyhan oil pipeline in southeast Turkey has disrupted oil flow from northern Iraq: report.
• China state-owned refiners' crude runs expected to drop by about 6 percentage points from July to 80% in August due to maintenance.
• Russia expects to raise export tax for East Siberian crude to around $12/barrel from September.
• China's unmet LNG demand could reach 12.35 mil mt/year for 2020.
• The International Energy Agency expects oil demand to average 86.57 million b/d in 2010, 80,000 b/d more than previously estimated.

Bentek Energy

• Power Burn Analytic Report – Tropical Depression 5 Expected to Impact Power Burn in the Gulf
• Supply/Demand Balance Analytic Report – High Demand Continues to Suppress Storage Injections
• Rockies Observer – Outflows Drop to PNW, Implied Storage Injections Slow
• Texas Observer – ERCOT Sets Record Demand

Bloomberg

• Oil Falls for Second Day as China Output Growth, U.S. Productivity Slow
• IEA Raises Forecast for Global Oil Consumption Even as 2011 Growth Slows
• Europe Halts Naphtha Shipments to Asia for a Second Month: Energy Markets
• Louisiana Declares Emergency as Gulf Storm Builds
• E.ON Energy Trading Posts $85 Million Trading Loss on `Volatile' Market
• U.S. Lawyers Seek Dismissal of Lawsuit Challenging Deepwater Drilling Ban

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