Morning Petrospective – August 23, 2010
he oil complex picked up on Friday morning where it left off on Thursday afternoon – under selling pressure. And, while the discussion has turned increasingly to the record supply levels in the US, prices seem to have been tracking moves in the DJIA quite closely. For example, at 10:30 AM, crude was down 73 and the DJIA was down 78. At noon, crude was down $1.07 and the Dow was off 105 points. Some days, the relation seems to be nearly point for point. On other days, it seems to be bad on percentage changes.
That could have been enough. But, the euro was also very weak on Friday. At noon on Friday, the euro was down 135 points. That made inventory levels seem like the frosting on the cake as we finished the week.
Bloomberg noted on Friday, “Inventories of crude and fuel products rose to 1.13 billion
barrels last week, the highest level since the Energy Department began keeping combined weekly data in January 1990.” Compared to two years ago, distillate stocks are 42.1 million barrels (31.87%) higher, heating oil stocks are now 15.5 million barrels (44.16%) higher, crude oil stocks are 48.3 million barrels (15.79%) higher, Cushing crude stocks are 19.0 million barrels (105.55% - more than double) higher, gasoline stocks are 26.7 million barrels (13.58%) higher, residual stocks are 11.11% higher and jet fuel stocks are 17.36% higher than they were two years ago.
Total products demand is up 3.10% over the last four weeks, but that is down from 6.89% higher two months ago (week ended June 18th). Demand is better than a year ago, but not by all that much. And momentum is not pushing demand growth higher. If anything, the trend seems to be for demand to weaken.
Later in the day, the DJIA rallied, and it ended the day with a loss of 59.18 at 10,212.03. Crude oil prices, unsurprisingly, rallied along with equities to settle down 97 cents on the day. The biggest surprise of the week was the mildness of the week-on-week losses. Crude oil prices lost $1.93 on continuation charts and $2.31 for October delivery. Heating oil prices lost 2.46 cents a gallon and gasoline prices lost 1.45 cents a gallon. Natural gas futures gave back 21.1 cents per million Btu. It definitely felt a good deal more bearish than those numbers suggest. And the news, from the Philadelphia Fed to the Washington Labor Department and the DOE … wait, that’s not all that far … felt like it spanned the earth to get back again, it was so bearish. But, like the source of those three news reports this week, there was very little distance involved.
It is therefore somewhat misleading when we quote Dow Jones in saying that prices finished at six-week lows. It is spot on accurate, mind you. It’s just that the news seemed so much more disappointing as we received it. Prices did manage to rally from their intraday lows on Wednesday, especially, and to lesser extents on Thursday and Friday. Crude left $2.33 ‘on the table’ (subtracting the lows from the settlements) and heating oil failed to convert more than a nickel into lasting losses, over the final three days.
Oil prices have fallen in 11 out of the last 13 sessions. Crude oil prices have lost almost $10 from the highs reached on August 4th. Oil stocks are at their highest levels, collectively, in the 27 years that the DOE has been keeping track of inventories. And distillate stocks, specifically, are at their highest levels since 1983. Oh, and we are in the worst economic downturn of most of our lives, since the Great Depression.
Based on those factors, we believe that oil prices should be at their lowest prices since they started trading freely in 1978. The fact that they are not tells us that they are extraordinarily resilient. It does not tell us why, but we feel it has to do something with heavy investor buying interest over the last 16 months or so, and we feel that these investors and their handlers are valuing oil against gold. Any other historical criterion would argue persuasively for dramatically lower oil prices.
When we return next week, we need to balance this resilience against the forces arguing for lower prices – supplies, demand and the global economy. We believe that a number of investors still want to buy oil, and that they are eager to find a reason to do exactly that. If there is no reason, though, we could see very heavy long liquidation which, in the hands of investors losing money, looks much more like risk regurgitation.
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
- Tropical Storm Danielle formed over the Atlantic Sunday and could become a hurricane by late Tuesday, the US National Hurricane Center said.
- Russia's Gazprom has shown interest in the sale of Poland's second-largest refiner Grupa Lotos: report.
- South Korea's state-run National Pension Service said Monday it was seeking to acquire a 23.4% stake in US' Colonial Pipeline from Chevron.
- Nigerian truckers stop supply to Lagos over adulterated fuel row.
- Nabucco gas pipeline consortium has agreed to build "feeder" lines from Turkey to Georgia and to Iraq; but no feeder from Iran for now.
Bentek Energy
- Gulf Coast Production Analytic Report - Tropical Storm Danielle Develops in the Atlantic
- Supply/Demand Balance Analytic Report - Injections Increase and Demand Continues to Slide
- Texas Observer - Texas Demand Stumbles
- Northeast Observer - Demand This Week to Average 1.6 Bcf/d Less Than Last Week
- Southeast/Gulf Observer - Gulf South Maintenance Shuts-in Deliveries From Gulf Crossing
Bloomberg
- Crude Oil Rises From Lowest Level in Six Weeks as Chinese Equities Gain
- Hedge Funds Cut Bullish Gasoline Bets by Most Since 2006: Energy Markets
- Korea's National Pension Service Is in Talks to Buy Into U.S. Oil Pipeline
- Pakistan Gas Import Plans Delayed by Floods, Iran Sanctions
- Tropical Storm Danielle May Become Atlantic's Second Hurricane This Year
- Feinberg Says BP Gulf Oil-Spill Victims May Be Able to Sue Some Companies
- Sinopec Margins Set to Extend Slump as Fuel Prices Trail Crude
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