Morning Petrospective – September 2, 2010       

he oil complex came charging back on Wednesday, propelled by a surge higher in equities. The DJIA gained 254.75 to finish the day at 10,269.47. According to Capital Economics (CE), “The financial markets have decided to ignore the negative news that private employment may have contracted in August and are concentrating on the unexpected rebound in the ISM manufacturing index last month.” The markets also ignored oil market fundamentals from the Department of Energy (DOE) in its weekly statistical roundup. To make a long story short, investors jumped over a number of obstacles to respond to the one piece of bullish news out of a slew of bearish factors.

In that respect, it was like watching parents fighting over the last i-pod on the Friday after Thanksgiving (or last beanie baby, ninja turtle, playstation or whatever the “hot” toy was for any year in particular). Here, we had a bearish API report, a bearish DOE report, and an ADP employment report that Capital Economics believes “is only going to heighten fears about a double-dip recession.” It showed a 10,000 decline against estimates for a gain of 25,000, and the “deterioration in employment was widespread … .” CE added, “If the employment is shrinking … we will start to see the unemployment rate edging higher over the next few months. With fiscal policy paralyzed … the pressure will all be on the Fed.” There is a limit to the magic that august body is capable of working.

But, the “unexpected rebound in the ISM manufacturing index, to a three month high of 56.3 in August from 55.5 the month before, is a rare piece of good news.” Apparently, it was good enough to overshadow news that construction spending had fallen to its lowest level in 10 years in July. Investors must have very badly wanted to invest in anything with a pulse to see bullish seeds among the excrement that formed the bulk of Wednesday’s news. Pardon us, but the disconnect between employment, construction spending, oil inventories and plunging August auto sales on the one hand and the substantial gains in equities, on the other, leaves us gaping in bewilderment.Oil inventories are still at their highest combined levels in the 27 years that records have been kept. Distillate stocks are their highest since 1980 and crude oil stocks were higher for a week or two in August, 1990, before Iraq invaded Kuwait. Total products supplied, over the last four weeks, are now 1.45% higher than a year ago, for the same four-week aggregate average. Two weeks ago, they were 13,000 bpd higher and were 3.10% higher than year-earlier figures. Four-week gasoline demand is 9.364 million bpd and 1.95% higher than the same four-week average a year ago; two weeks ago, it was 9.451 million bpd and 3.49% higher than the same average in 2009. The fundamentals in the oil market are certainly not better.

It is a strange market. One knows that something is amiss when prices react more intensely to a 0.8% improvement in the ISM manufacturing index than a 3.4 million barrel build in crude oil stocks, a 25,000 swing the wrong way way in employment, and the worst construction spending in 10 years. And it’s all happening while the markets ignore a conveyor belt of tropical storms! Someone dropped the markets on their heads.

     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

• A US judge rejected US Interior's attempt to have a lawsuit against its first deepwater drill ban dismissed, citing procedural errors.
• While Hurricane Earl regained Category 4 strength as it nears the US East Coast, TS Gasto.
• Japan set to approve additional sanctions against Iran Friday amid concerns over its nuclear program, government sources say.
• France's GDF Suez makes gas find offshore the Netherlands and expects new "Sierra" discovery to have sufficient reserves for development

Bentek Energy

• Southeast/Gulf Observer – Soft Demand and Weak Prices Expected Over the Long Holiday Weekend
• Northeast Observer – Prices Will Experience Downward Pressure as Demand Begins to Decrease
• Rockies Observer (Weekly) – High Storage Levels Prompt Imbalance Warnings
• Supply/Demand Balance Analytic Report – Hurricane Early Approaching U.S. East Coast, Demand Impact Expected

Bloomberg 

• Crude Futures Fall as Equities Retreat, Euro Declines Before ECB Meeting
• Petrobras to Buy Oil From Brazil for $42.5 Billion in Stock
• TXU Bonds Tumble as Natural Gas Drop Imperils Biggest LBO
• Qatari Oil Rises on Japan's Record Low Kerosene Supplies
• Gazprom Profit Triples to Record After Cold Weather Boosts Natural-Gas Use
• Deutsche Bank Fund, Macquarie Interested in Buying RWE's German Gas Grid
• Bear Flag' Signals Drop in Crude Prices to Near $60: Technical Analysis

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