Morning Petrospective – August 16, 2010       

he US dollar ended its best week in two years on a positive note against the euro, and the DJIA ended the week on a quiet note trading near unchanged. It was the stock market’s worst week in a month. Oil prices finished slightly lower, losing $0.35 a barrel. It was the fourth day lower in a row. For the week, a barrel of crude lost $5.36. Heating oil prices lost 15.16 cents a gallon and gasoline lost 17.31 cents a gallon. The euro was down 74 points to $1.2753, and the DJIA was 16.90 to 10,303.15. The theme of the week was weakness (in oil) based on falling equities and a weakening euro. Either the fundamentals were given a chance to shine through or investors were liquidating longs.

It is actually more than just an academic exercise for us. If this week’s weakness in the euro and equities simply chased investors out of their long holdings in oil and other commodities or risk assets, then it would not be nearly as significant for us as it would be if that weakness actually was allowing the oil market fundamentals to shine through. Open interest was actually rising through Thursday, rather than declining as would be the case if it had been strictly long liquidation by investors who had previously purchased oil contracts when equities and the euro were higher. As a result, there is some hope that this week’s declining equities and euro activity opened the door to traders to see the oil market’s fundamentals. Had open interest fallen, instead, it could have been proof positive that it was just investors liquidating.

US retailers reported sales in July at lower levels than forecast, and that helped unnerve investors. Retail sales were up just 0.4%, against expectations that they would increase by 0.5%. This lower figure was reinforced (in its bearishness) by a revision in June retail sales to up 0.3%. The July numbers were especially disappointing, though, because they would have dropped 0.1% if one were to strip out higher-priced gasoline sales and highly erratic auto sales. It also could prove troublesome because retailers typically discount merchandise in July, which is usually the weakest month in the third quarter.

The Labor Department also announced that the cost of living had increased in July, for the first time in four months, with the CPI up 0.3%. Gasoline prices contributed to higher costs, which are not welcome right now, with high unemployment and slow income growth buffeting consumers. The core rate was up 0.1%, which was expected, and was up just 0.9% from last July, matching the smallest year-to-year increase since 1966.

The German economy grew at 2.2% in the second quarter, which was the fastest pace since east and west were rejoined 20 years ago. Analysts had been expecting growth of 1.4%, and the German figure helped euro-zone growth reach 1.0%. Despite that, the euro dropped on Friday against the US dollar (see chart to left), as investors continued to flock to safe havens.

OPEC increased its estimate for global oil demand in 2010 and 2011 by 140,000 bpd (in each year). It expects global consumption to increase by 1.05 million bpd (1.2%) to 86.56 million bpd next year. It projects the call on its oil to reach 28.9 million bpd in 2011.

There is plenty of oil available right now, and oil market fundamentals are bearish. The question for next week is whether they will be allowed to further develop their theme of weakness through lower prices.

     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

• Alabama filed suit Friday against BP, Transocean and unnamed others responsible for the Macondo oil spill.
• Cairn said it will sell up to 51% in its India unit to metals and mining company Vedanta for $8.5 bil; the deal is set to complete this year.
• Khatibi said Iran oil exports "continue normally and naturally" despite sanctions; refinery maintenance explains the volume held in storage.

Bentek Energy

• Power Burn Analytic Report - Tropical Depress 5 Continues to Impact Power Burn in the Southeast
• Supply/Demand Balance Analytic Report - Today's Storage Injection Outpacing MTD Average
• Industrial End Users Analytic Report - U.S. Industrial Demand Continues to Fall from Weekend
• Texas Observer - Texas Moves Toward Resuming Storage Injections

Bloomberg 

• Crude Rises From One-Month Low on Speculation Industrial Demand Is Gaining
• BP's Relief Well Effort Delayed by U.S. Concerns Over Risk of Oil Release
• Hedge Funds Cut Bets on Rising Gas by 23% as Prices Fall
• Cnooc's Profit Growth to Exceed PetroChina's, Shell's as Oil Output Climbs
• Vedanta to Buy Stake in Cairn Unit for as Much as $9.6 Billion
• Goldman Says Spreads Between WTI Crude Oil Contracts Are Strengthening

Technical Recap

Crude Options Report / Straddle Runs

NG Options Report

Premium Subscriber  (click here to register):

Volumes & Open Interest

End Of Day Straddles

Settlements