Morning Petrospective – August 17, 2010       

he energy complex was slightly lower on Monday, led lower by the “gases” – gasoline and natural gas. Crude oil and heating oil prices were just fractionally lower in a relatively quiet trading day. With August winding down its second half, it seems that all of Europe and large parts of the rest of the northern hemisphere are on vacation or holiday.

And, as if to highlight this, equities were barely changed, down just 1.14 on the day to 10,302.01, while the euro was mostly under selling pressure early in the session, only to rally in later in the day. Traders and investors saw a weakening economy and plentiful oil supplies as reasons not to be aggressive buyers when the euro rallied later in the day.

It was reported that less than 400,000 crude oil contracts traded hands, which is an extremely small number for that market this year. Crude oil prices dropped $5.36 a barrel last week, and they negated the previous week’s technical breakout to the upside. Now, many are asking whether prices want or need to test the lower reaches of their recent trading range between $69.50 and $83.00 before triggering the buying interest to turn higher again.

Open interest changes last week seemed to bolster the case for the fundamentals. Rather than strictly following the euro or equities, it looked like moves lower in those outside influences had allowed the supply and demand to shine through to push prices lower. That theory was based on the fact that most of the losses seen from Tuesday to Tuesday last week came from fresh selling, rather than just long liquidation by the investor-heavy index funds that had helped push prices higher. But Monday’s activity may force us to reconsider the role of supply and demand in recent price moves. The fundamentals were just as miserable on Monday as they had been all last week (indeed, for months, or most of this year), but oil prices were not down dramatically. They were down relatively mildly, although they were not as near unchanged as either equities or the euro was by the end of Monday’s trading. The final take on the ongoing role of supply and demand in this market remains to be seen. We may have a clearer idea after this week’s supply & demand statistics.

The Empire State activity index was “a frankly awful report that will only reinforce fears this could turn out to be a hard landing,” according to Capital Economics. It showed new orders and shipments numbers had dropped into negative figures, although we have no idea on what scale these or a number of other indices are based. Still, the figures were poor.

Investors are unlikely to be jumping back into oil with both feet any time, soon, but there is not yet any tangible sign that they have been getting out of existing long holdings. At this stage, they seem to be holding on, waiting for someone else to bid prices higher. We do not get the sense that this is likely to come from supply or demand statistics this week.

     FMX Newswire       

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Platts oil

• Indonesia targets crude, condensate output of 970,000 b/d in 2011 state budget draft, 0.5% higher than its 2010 target.
• Japan's fourth-largest city gas company Saibu Gas gets first 8.500 mt LNG cargo from Russia's Sakhalin 2 project Tuesday.
• Woodside Petroleum makes another gas find off Western Australia, in exploration aimed at feeding its Pluto LNG project expansion.
• Iraq's Kirkuk crude pumped to Turkey's Ceyhan down by two-thirds in last 24 hours to 200,000 b/d on Iraqi power supply cuts

Bentek Energy

• Power Burn Analytic Report - U.S. Power Burn to Trend Downwards Throughout Remainder of August
• Supply/Demand Balance Analytic Report - Demand Expected to Trend Downwards For Remainder of the Month
• Gulf Coast Production Analytic Report - Thunder Horse Platform Returns Full Operation This Week

Bloomberg 

• Crude Oil Trades Near Five-Week Low on Signs Economic Growth Is Faltering
• Oil Supply Falling to Four-Week Low on Imports in Survey
• Remnant of U.S. Gulf Storm Last Week Has `High' Chance of Becoming Cyclone
• Obama's Deepwater Oil Drilling Bans Sent to New Orleans Judge for Review
• Woodside, Rival Chevron Announce New Gas Discoveries Off Western Australia
• Energy Capital Raises $4.34 Billion for New Fund as Prices Lure Investors

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