Morning Petrospective – August 25, 2010
he decline continued on Tuesday, with crude oil prices leading the complex lower. Gasoline prices were weak, and they continued their breakdown below 190.00, printing their lowest levels since July of 2009. If gasoline prices are an accurate reflection of consumer demand, then the US economy is in very poor shape.
Crude oil prices also ended the day at historically low levels, in their case printing the lowest levels in two months. Once again, weaker equities quotes played a role in Tuesday’s decline in oil markets. The DJIA ended the day down 133.96 to 10,040.45. The euro was lower to start the day, but rallied before it, too, finished the day in negative territory against the US dollar.
Existing home sales dropped 27.2% in July, reflecting the full impact of the expiration of a government tax credit for buyers. Capital Economics (CE) wrote on Tuesday that the tax credit “meant sales were brought forward from the summer months into the spring.” It also noted that, “at current rates of sale it would now take 12.5 months, up from 8.9 in June, to clear all the homes on the market. That’s well above the seven months that have historically been consistent with stable prices.” Homes sales are now 34% below the April (tax-assisted) peak and are “well below the previous cycle low of 4.53 million in November, 2008 and back at a level not seen since June, 1993.” These figures played heavily on the minds of investors on Tuesday.
Bloomberg reported yesterday that hedge funds and other large speculators reduced their net-long holdings in gasoline futures by 74% in the seven-day period ended August 17th. It was the largest reduction in speculative long positions in gasoline in nearly four years, since October, 2006. Gasoline inventories are at their highest level since 1990, and that has helped remove one element of support from the market. As equities have weakened since early May, removing another potential source of support in this market, gasoline prices have dropped roughly 21%, falling from the May 3rd high of $2.4411/gallon.
This week’s American Petroleum Institute (API) report showed a draw of 1.847 million barrels in crude oil stocks, a build of 692,000 barrels in gasoline stocks and a build of 1.889 million barrels in distillate stocks. Crude oil imports gained 755,000 bpd to 10.358 million bpd, and refinery utilization was down 0.5% to 85.0%. Implied demand in gasoline came in this week at 9.544 million bpd and at 4.269 million bpd in distillate. 
Oil prices have fallen in 13 of the last 15 sessions, or starting August 4th. The US dollar has advanced in 10 out of the last 12 sessions, and the DJIA has fallen in nine out of the last 11 days. Clearly, there is a connection. As poor as the oil market fundamentals are – and they are – we have to wonder how many of the last 15 days would have had lower oil prices if equities or the euro had been higher on more days than not. Our informed guess is that oil prices might have had statistics similar to those seen in equities or currencies.
That does not mean that the oil market fundamentals are not worth following. A large part of the selling, or certainly the amount and urgency of the selling, seems to have been spurred by the abundance f oil in storage right now. The fundamentals may need lower equities or euro values to block for them, but the supply & demand figures are the ones actually running up the yardage, to a large extent, we believe.
The table above shows the latest DOE report estimates from surveys conducted by the listed wire services.
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
- 2 Asian term crude buyers have been notified by Kuwait Petroleum Corp. that they will receive a 5% supply cut on term cargoes over Oct-Dec.
- Japan's crude stocks rose 5.3% to 99.47 mil barrels Aug 21, from 94.44 mil lbarrels Aug 14.
- The UK's Tullow Oil said Wednesday it now sees first oil from its Jubilee field offshore Ghana in November or December this year.
- The crude oil price is likely to remain largely in a $70-$75/b range until at least mid-2011, BP group chief economist Christof Ruhl said.
- The estimated cost of decommissioning the UK's old oil and gas production assets has risen to around GBP30 billion ($46 billion).
Bentek Energy
- Power Burn Analytic Report - Gulf Power Burn Plummets as Region Cools Down
- Gulf Coast Production Analytic Report - Gulf Coast Production Dips Another 153 MMcf/d
- Supply/Demand Balance Analytic Report - Production Down Nearly 1.0 Bcf/d in the SE/Gulf
- Pacific NW Observer - Power Demand, Prices Take Off on Hot Weather in California
Bloomberg
- Oil Snaps Five-Day Losing Streak as Decline to Near $70 Draws Investors
- Natural Gas Futures Premium Is at Narrowest in Seven Years
- Distillates Rising to 27-Year High in Survey
- China's Crude Oil Demand Growth May Slow in Third Quarter as Economy Cools
- Danielle Regains Hurricane Strength Over Atlantic, May Miss Gulf of Mexico
- Drillers May Face Months of Waiting Even After Obama Lifts Deep-Water Ban
- Tullow Oil Falls Most in Three Months on Uganda Delay Over Tax Dispute
Technical Recap
Crude Options Report / Straddle Runs
NG Options Report
Premium Subscriber (click here to register):
Volumes & Open Interest
End Of Day Straddles
Settlements