Morning Petrospective – September 1, 2010       

il quotes were lower on Tuesday, as traders seemingly returned to the market’s fundamentals in the absence of any strong undercurrent of support from stock markets or currencies. The activity reinforced the argument that unchanged or lower moves in equities or the euro merely open the door for oil market fundamentals to shine through. And Tuesday was a good day for it. Economic news was on the sparse side and September refined products futures expired in the afternoon, making those bids and offers that were generated that much more capable of moving quotes. The DJIA was up $4.99, to 10,014.72, and the euro loitered near unchanged, finishing slightly higher on the day, which did nothing to get oil traders feeling aggressive.

With the oil complex’s two leading outside influences effectively on ice, it opened the door for market fundamentals and expiration dynamics to be the day’s major motive factors. The fundamentals are, as we have noted repeatedly, dreadful to the point of being historically among the worst supply & demand factors ever seen. And these were capable of pushing crude oil prices substantially lower. October crude ended the day with losses of $2.78 a barrel. But, because the September refined products contracts were expiring with a number of shorts eager to cover rather than make physical delivery, the losses seen in crude oil were not fully converted into commensurate losses in heating oil or gasoline. One could argue that the fundamentals are every bit as bearish in products as they are in crude – with the possible exception of overly abundant stocks at Cushing, Oklahoma.

If refined products had fallen point for point with crude oil quotes, heating oil and gasoline would have declined 6.62 cents a gallon. They did not come close to that, suggesting that there are positions held more by speculators or investors with a genuine reluctance to get involved in the delivery process.

The market ignored an increase in the Conference Board’s index of consumer confidence. While it is hardly blistering enthusiasm, the measure of confidence increased from 51.0 in July (which had been revised up from an original 50.4) to 53.5 in August. Capital Economics (CE) described it as a “rare glimmer of hope in the seemingly relentless flow of weak data.” CE noted that the increase reversed most of the decline seen in July, but that the index was still below the June reading of 62.7 and well below “the long-run average of 94.” This week’s American Petroleum Institute (API) report showed a build of 4.765 million barrels in crude oil stocks, a draw of 589,000 barrels in gasoline stocks and a draw of 1.860 million barrels in distillate stocks. Crude oil imports fell 1,149,000 bpd to 9.209 million bpd, and refinery utilization was down 0.2% to 84.8%. Implied demand in gasoline came in this week at 9.489 million bpd and at 4.693 million bpd in distillate.

The Case-Shiller national housing price measure also increased by 2.3% in the second quarter, but it did only because it reflected seriously lagging figures affected by the $8,000 tax credit, which expired at the end of April. Housing prices have not yet officially reacted to the “34% plunge in home sales seen after that tax credit expired,” CE noted. When those figures are reflected in prices, it will be ugly.

Hurricane Earl has become a Category Four storm, and Tropical Storm Fiona has formed behind it. Earl is expected to curl north by northeast into the Atlantic, but the East Coast has been placed on alert. Fiona could potentially affect oil production, drilling and gathering facilities, but it is too early to tell.

     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

• Petronas Carigali, the upstream arm of Malaysian Petronas, has discovered oil and gas in the Ham Rong prospect offshore northern Vietnam.
• Japan's crude stocks fell 2.1% week on week to 97.35 mil barrels Aug 28, from 99.47 mil barrels, the Petroleum Association of Japan said.
• PetroChina started operations Tuesday at its 10 mil mt/year Qinzhou refinery in Guangxi Zhuang Autonomous Region in southwest China.
• Japan's state owned JOGMEC plans to issue a one-day tender on September 15 to buy 1.25 million barrels of Middle Eastern crudes.

Bentek Energy

• Northeast Observer - Above Normal Demand Continues to Put Upward Pressure on Prices
• California SW Observer - California/Southwest Demand Begins a Four-Day Climb
• Texas Observer - Texas Storage Injections Expected to Climb Into the Weekend
• Pacific NW Observer - Declines in Demand, Storage Lead Implied Storage Levels Higher
• Supply/Demand Analytic Report – Injections Expected to Rise and Demand Declines Through Weekend

Bloomberg 

• Oil Rises From One-Week Low as China Manufacturing Expands at Faster Pace
• Ethanol Surpasses Gasoline for First Time Since December
• Oil Price May Fall to $63 If Cap at `Pivot High' Holds: Technical Analysis
• Hurricane Earl Powers Toward U.S. as Emergency Agencies Prepare
• BP Raises $363 Million in Malaysian Asset Sale to Help Pay for Gulf Spill

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