Morning Petrospective – August 13, 2010
il markets were crushed again on Thursday, with crude oil prices falling another $2.28, to bring the two-day loss to more than $4.50 a barrel. The Dow Jones Industrial Average (DJIA), the bellwether equities average, dropped 58.88 points to 10,319.95. The weakness in equities was once again a major contributing factor to the weakness in oil prices. The euro was also lower on Thursday, but hardly to the extent it was on Wednesday (see chart next page). We now have losses of $5.74/barrel in crude since Monday night’s higher close, which is the largest three-day decline since May, Dow Jones News noted in its daily roundup. Thursday’s losses were also propelled by another increase in unemployment.
It was hardly a major data-point, but the weekly unemployment figures released by the Labor Department showed a rise of 2,000 initial claims for unemployment insurance, raising the figure to 484,000 for the week ended August 7th. The four-week moving average also increased, by 14,250, to 473,500.
Economists surveyed by The Wall Street Journal offered a dire forecast, suggesting that the US economy is likely to add just 136,000 jobs a month over the next 12 months, a figure that was down from their forecast figure of 157,000 new jobs each month, in the same survey a month ago. At the new predicted rate, unemployment would remain above 9% through next June.
This increase in the jobless number underlined the uphill struggle facing the world economy, and it triggered a continuing migration into safe havens like the US dollar and gold. Other forms of “risk” were avoided or liquidated, with oil futures being unloaded heavily by investors. The euro was lower again (see chart) as investors bought dollars, albeit less aggressively than on Wednesday.
On Wednesday, gasoline prices had been the biggest losers, dropping 8.77 cents against 5.02 cents a gallon in heating oil. On Thursday, heating oil prices dropped 7.37 cents a gallon while gasoline prices dropped 4.28 cents a gallon. On Wednesday, traders were reacting to the drop in gasoline demand during the height of driving season. Traders revisited the picture on Thursday, and they were selling heating oil based on growing inventories and poor demand there, as well, in this week’s report.
This week’s DOE report showed gasoline demand at 9.236 million bpd, which is a low number, especially for August. Distillate demand was just 3.400 million bpd, which is also low. Four-week aggregate averages were better this week, but the fear is that these most recent figures represent the creeping edge of a new trend towards lower demand. As it stands this moment, anyway, refineries are cutting utilization, which should bring output back in line, but it may be too late, if demand is starting to fall along with economic expectations.
Oil markets are back inside trading ranges and they may need to visit their lower parameters. Fundamentally, we honestly would have a hard time getting bullish – based strictly on supply and demand – even at prices half of what they are right now. However, and it is a big caveat, supply and demand are not even the second or third leading factors deciding oil prices in 2010. Equities, currencies, low interest rates and the carry trade and economic statistics have been leading oil by the nose all year. It is only now, with all of these looking rather grim, that oil prices have been allowed to follow their own supply and demand factors.
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
- Indian HPCL-Mittal Energy Ltd. is likely to commission its 9 mil mt/year refinery in Bhatinda, Punjab, before Mar 2011, ahead of schedule.
- South Korean refiners have all raised their run rates in August, amid better cracking margins, especially for middle distillates.
- Indonesia power utility Perusahaan Listrik Negara is in talks with the local subsidiary of US energy major ExxonMobil to buy coalbed methane.
- Legislation banning offshore drilling close to Italy's coast is to come into force August 26, in the wake of the US Gulf oil spill.
- Italy to enforce offshore drilling ban August 26: UK explorer
Bentek Energy
- Power Burn Analytic Report - Above Normal Power Burn Expected Throughout August
- Gulf Coast Production Analytic Report - Return to Production at Thunder Horse Offsets Decline in Onshore Texas
- Supply/Demand Balance Analytic Report – The U.S. Returns to Injections as Demand Declines
- Rockies Observer – Outflows to the PNW Climb, Implied Injections Slow
Bloomberg
- Crude Oil Trades Near Four-Week Low in New York as Equity Markets Retreat
- BP May Not Need to Finish Drilling Relief Well, Allen Says
- Oil to Hold Above $75 as Rising Pattern Stays Unbroken: Technical Analysis
- Caribbean Petroleum Seeks Bankruptcy Protection After U.S. Cleanup Order
- Gasoline Futures Decline on Concern High Unemployment to Curb Fuel Demand
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