Morning Petrospective – August 20, 2010       

il prices were down steeply on Thursday, with the selling developing as soon as the latest unemployment figures were released. Prices had been higher in overnight trading, in response to higher equities levels in Asia, on rumors that China will introduce fresh stimulus. Traders were also looking at oversold pressures early this morning.

All of that changed with the release of this week’s unemployment report. It showed an increase of 12,000 in initial jobless claims, and expectations had been for a decline of 4,000 to 6,000. This caught everyone leaning the wrong way and equities collapsed.

At 1 PM, the DJIA was down roughly 1.5% … and crude oil was down roughly 1.5%. We have noted before the tendency of double-digit DJIA losses to be accompanied by double-digit oil losses, and by triple digit losses in one to be accompanied by triple digits in the other. It seems that the two markets are pulling in tandem. It seemed that way on Thursday. The euro was also lower, although the proportion was much different.

We would love still to see in Thursday’s activity signs that lower equities and a weaker euro have opened a window to let weak oil market fundamentals shine through. But, if we were pricing oil using supply and demand, the price of crude would be below $35 and potentially as low as $10 a barrel. We have more oil in inventories than ever before and there is no timetable for a return to economic growth with its attendant surge in demand. Prices are near $75 instead because investors – gargantuan investors – are pricing oil more in terms of gold than in terms of the market’s history, the euro, the dollar, or supply and demand.

The artificially high oil price is costing American consumers $300 to $425 billion a year, according to our own estimates. That is effectively a tax which is in place right now and it is bleeding hundreds of billions from consumers at exactly the worst time in our history. It is good to see oil prices sell off on Thursday. But it is a deck-chair off a cruise ship. Prices should be substantially lower, based on record supplies during a recession with no timetable for recovery.

This week’s DOE report showed distillate stocks 42.1 million barrels (31.87%) higher than they were two years ago. Heating oil stocks are now 15.5 million barrels (44.16%) higher than they were two years ago. Crude oil stocks are 48.3 million barrels (15.79%) higher than in 2008, with Cushing stocks 19.0 million barrels (105.55% - more than double) higher than they were two years ago. Gasoline stocks are 26.7 million barrels (13.58%) higher than they were at this point in 2008. The absolute figures are approaching records across the board. Residual stocks are 11.11% higher and jet fuel stocks are 17.36% higher than they were two years ago. Bloomberg noted on Thursday that crude stocks are now 8.2% higher than the five-year stock average. Distillate stocks are 27.0% higher, and gasoline stocks are 10.3% higher than their five-year averages.

And, this week’s EIA natural gas underground storage report showed gas reserves above three trillion cubic feet, a figure that once was seen as a level needed to be seen by All Saints’ Day (November 1^st) rather than by Saint Bartholomew’s Day (August 24^th; last Friday was Saint Pontian’s, but he is not well known). Saint Bartholomew’s Day is known in history as a day during which a massacre occurred in 1572, in Paris, which shocked contemporaries (most notably in England). We seem to be in the middle of a massacre of natural gas prices, which have not enjoyed the same relation to gold that oil prices ostensibly have.

Oil prices are artificially high here, based on investor buying. Those investors seem to be selling now.

     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

• KNOC made a hostile takeover bid for UK's Dana Petroleum. KNOC said that it's bid has the support of nearly 49% of Dana's shareholders.
• TNK-BP is considering investing in the expansion of Vietnam's 6.5 million mt/year refinery, according to PetroVietnam.
• Japan issued an alert Friday urging more vigilance for Japanese ships transiting the Strait of Hormuz.
• Russia's Sistema denies reports it has started the process of merging the country's 8th and 9th largest oil producers Bashneft and Russneft.

Bentek Energy

• Power Burn Analytic Report - August 2010 MTD Average Burn is 4.5 Bcf/d Higher than 2009
• Gulf Coast Production Analytic Report - Tropical Activity Picks Up Off the Coast of Africa
• Supply/Demand Balance Analytic Report - Northeast Production Reaches All-Time High Yesterday
• Texas Observer - Texas Production Continues to Climb

Bloomberg 

• Crude Oil Declines to Six-Week Low Amid Signs U.S. Recovery Is Faltering
• Korea National Oil Makes $2.9 Billion Bid for Dana
• Cnooc Banks on Acquisitions, China Oil Output for Growth as Profit Doubles
• Pemex to Offer First Gulf of Mexico Drilling Contracts After BP Oil Spill
• Oil May Fall as Economic Recovery Slows, Stockpiles Climb, Survey Shows

Technical Recap

Crude Options Report / Straddle Runs

NG Options Report

Premium Subscriber  (click here to register):

Volumes & Open Interest

End Of Day Straddles

Settlements