Morning Petrospective – September 7, 2010       

il prices ended last week on a slightly lower note, after rallying on Wednesday and Thursday – after seeing on Tuesday the biggest one-day move in crude in either direction since the decline of $3.10 on June 4th, which was the Friday on which May’s unemployment numbers were released. Most of Tuesday’s losses were made back on Wednesday and Thursday, and that left Friday’s activity as something of an anticlimax. The day’s big news had been the figures on August unemployment, which showed the addition of more jobs than had been expected. Private jobs increased by 67,000 in August and July’s figure was revised to show a (private jobs) increase of 107,000.

These were seen as positive factors, with private employers adding 67,000 new jobs, against expectations for an increase of 40,000. At the same time, July private employment was revised higher from its initial estimate of 71,000 to 107,000. Since so many traders and investors had been reportedly waiting for the employment figures, it was surprising that they chose, instead, to focus on Friday on an Institute for Supply Management (ISM) report showing non-manufacturing growth in August at its lowest level since January. The ISM service sector index dropped to 51.5 from 54.3 in July. This was seen as the main factor behind lower prices on Friday. Readings above 50 indicate expanding activity, so a reading of 51.5 suggests that the service sector of the economy is growing at the slowest rate possible for it still to be categorized as growth. Overall, including government jobs, which have been dropping as cyclical census workers have been laid off, non-farm payrolls dropped by 54,000 in August, which was half the rate of 110,000 expected by analysts surveyed by Dow Jones.

The ISM services figure hardly reflected the kind of growth needed to eat into the largest oil surplus in three decades. That was the take on the overall picture rendered on Friday. It strikes us as an accurate interpretation, even though this market still is able to conjure up investor buying when there is almost any sign of economic growth.

At the end of the day, the difference between the most optimistic economic outlook and the reality of inventory overhangs has been getting worse and worse all year long. In fact, it started 2010 at a fairly wide gulf, and the economic outlook has been worsening, certainly since May, while the oil inventory surpluses have been getting bigger and bigger. We feel like we are watching the life of Dorian Gray, while the picture gets older and nastier and the living being stays the same. In this situation, the market remains strong while the oil surpluses expand and the economy stagnates and gets weaker. The market (Dorian Gray) no longer reflects all the negative factors that we see in the picture of supply and demand, which is in an attic, like the picture in the Oscar Wilde story.

Crude oil stocks are now 57.8 million barrels (19.02%) higher than they were two years ago. Cushing stocks are now 17.7 million barrels, or 97.79% higher than two years ago. At the start of June, they were 16.1 million barrels (75.59%) higher. Distillate stocks are 43.5 million barrels (33.03%) higher than two years ago with heating oil stocks now 17.1 million barrels (48.44%) above those levels. At the start of June, distillate stocks were 40.8 million barrels (35.78%) higher than two years ago. Gasoline stocks are 31.0 million barrels (15.95%) higher than they were at this point in 2008, two years ago. At the start of June, they 8.9 million barrels (4.24%) higher than they had been two years earlier. Gasoline stocks have caught up with crude and distillate stocks this summer. The oils were not dramatically worse, but they did not get better. The economy weakened.

     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

• National Incident Commander Thad Allen said Saturday that a new blowout preventer has "basically secured" the BP Macondo well site.
• India's public and private refiners imported more crude in Aug than in July, data from shipping fixtures compiled by Platts showed.
• Israel Knesset committee to meet next week to discuss hike in royalties on oil, gas discoveries.
• Qatar has raised its prices for crude lifted in August by $1.60-$1.65/barrel.

Bentek Energy

• Power Burn Analytic Report – Power Burn off Nearly 8 Bcf/d Since the Beginning of the Month
• Industrial End Users Analytical Report – Lowest 2010 Industrial Demand Levels Seen Over Holiday Weekend

Bloomberg 

• Crude Oil Futures Fall to Three-Day Low on Speculation of Falling Demand
• Asia to Buy First European Naphtha Cargoes in Three Months
• Tropical Storm Hermine Brings Winds, Heavy Rain as Crosses the Rio Grande
• Transneft Risks Downgrade on Sale as Bonds Decline
• Greens Seek `Fast, Furious' Movement on Climate If Gillard Leads Australia
• German Nuclear Power Extension Threatens Offshore Wind Funding

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