Morning Petrospective – September 8, 2010       

il prices were lower on Tuesday as investors pulled back on risk appetite plays and put their money in so-called “safe-havens” like the US dollar. That, in turn, put pressure on the euro, which has been one of the assets that oil prices have followed fairly closely. The other outside influence that has had a consistent impact on the price of oil has been the stock market, and that was lower as well on Tuesday. After a strong showing late last week, the DJIA dropped 107.24 on Tuesday to close at 10,340.69. As we have noted here at length, the oil market fundamentals are just not bullish enough on their own to justify existing price levels – far less are they sufficient to propel prices higher.

When equities and the euro are lower, it leaves the oil market open to supply & demand factors, which have been bearish, to one degree or another, since the second half of 2008. We actually believe that the supply & demand picture has worsened in recent weeks, and wire services have been quick to not that oil inventories are now at 27-year highs. The only reason that it is 27 years is because that is how far the numbers go back. If they had been kept for a longer time, the existing stock levels would be high water marks over an even longer period of time.

There is a consensus emerging that economic growth is not going to be strong enough to eat into the existing surpluses. We have had too many negative economic data points released over the last few weeks for us to build a convincing argument that the economy is recovering strongly. On top of that, there has been growing concern, again, over the sovereign debt exposure in Europe. This has been a recurring theme that has led to weakness in the euro and in oil prices, as a result. On Tuesday, the euro hit a new all-time low against the Swiss Franc. It also dropped substantially against the US dollar, and that was one of two major props that were pulled out from beneath oil prices on Tuesday (with the other being equities). Traders and investors were discussing a Wall Street Journal report that the recent stress tests conducted on European banks had undervalued lenders’ holdings of potentially risky sovereign debt.

The recent weakness in oil prices has been evident in the erosion of the month-to-month spreads, which have been widening. Front-month October crude oil prices were down 51 cents on Tuesday, with the following month, November, down just 12 cents. December crude futures were actually higher on Tuesday. Refined products prices were higher on the day, as traders looked ahead to lower refinery utilization rates, but also reacted to a refinery explosioon in Mexico. The Cadereyta refinery (217,000 bpd) in Nuevo Leon state had an explosion that could back out crude supplies at the same time that it cuts into refined products supply.

This week’s DOE report will be released on Thursday because of Labor Day. We have incomplete estimates listed below and will update these as data becomes available and is fine-tuned. 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.

Technically, crude is in a trading range between $69.50 and $82.97.

     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

• Fitch has upgraded BP's long-term debt ratings to 'A' to reflect the effective shut-in of the Macondo well in the Gulf of Mexico.
• Australian crude oil and condensate output fell 6% to 456,000 b/d in the fiscal year to Jun 30, 2010, from the previous year's 485,000 b/d.
• Japan's crude stocks fell 1.6% to 95.77 mil barrels Sep 4, from 97.35 mil barrels Aug 28, the Petroleum Association of Japan said.
• UK's Dana Petroleum again urged its shareholders to reject a GBP18/share takeover offer from South Korea's state-owned KNOC.

Bentek Energy

• Power Burn Analytic Report - Storage Injections to Increase as Weekly Power Burn Declines 20%
• Northeast Observer – Temporary Jump in Demand Puts Upward Pressure on Cash Prices
• Texas Observer – Demand Set to Spike in Texas
• Supply/Demand Balance Analytic Report  - Low Demand and Heady Production Numbers Lead to High Implied Storage

Bloomberg 

• Oil Falls a Third Day on Speculation European Debt May Curb Global Growth
• Oil Contango Doubles in 2011 Recovery Betting With Frontline Ship Demand
• BP Report Says Many Factors Caused Macondo Oil Spill
• China Supplants U.S. at Top of Ernst & Young Ranking for Renewable Energy
• Crude Oil Caught in a `Stalemate' Between $70 and $75: Technical Analysis
• Asia Gasoil Rises to Highest in a Month as Fuel Oil Crack Widens: Wrap
• Tropical Storm Malou Approaches Coast North of Kyoto, Bringing Heavy Rain
• Dana Says Worth 18% Above KNOC Offer Before Suncor Asset Bid

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