Morning Petrospective – April 29, 2011

il prices were lower overnight – at least crude oil and heating oil prices were lower, gasoline prices were up almost two cents overnight. The weakness did not last long and, by 11 AM, crude was up more than a dollar, heating oil was up more than three cents and gasoline had added a nickel. The weaker dollar and stronger DJIA were the main motivating factors, as traders were talking about the “transitory” nature of everything Ben Bernanke found contrary to US economic growth. Inflation, a weak dollar, and low interest rates were among the bullish transitory factors.

Thursday’s session was marked by trading on both sides of unchanged and by uncertainty over which factors were paramount in the market’s thinking. The latest unemployment figures, which showed a surprisingly large increase in first-time applications for unemployment insurance seem to have been much higher than anyone expected at this time in the cycle.

And the latest GDP figures, showing a growth rate of just 1.8% over the first quarter, were apparently just not strong enough to instill confidence in anyone that the economy is finally pulling out of its long recession. The whole reasoning behind higher oil prices, and higher gasoline prices at the pump, has been that higher prices have been necessary – as a byproduct of growth – for the economy to get back to basic levels of expansion. As the economy has shown signs of growing, there has been good buying in the oil complex, especially in gasoline. One of the costs of growth has been an increase in commodities prices as traders have interpreted every bullish signal for the economy as one that would spur growth, first.

Gasoline prices have been stronger than the rest of the complex because stocks have been dropping. Weekly ‘inventories” have been falling. Three weeks ago, gasoline inventories were 5.7 million barrels lower than a year ago. In the latest report, they were shown to be 18.1 million barrels (8.09%) lower. That is almost the entire bullish story, though. During that same period, four-week gasoline demand has dropped from being 1.24% lower than a year ago to 1.63% lower. The US is exporting gasoline, which is also part of the story, but the heaviest demand is still in the USA.

Gasoline prices hit a new two-and-and-a-half year high yesterday, and we continue to see fresh highs in the oil complex. We have higher exports, lower imports and smaller net numbers, it seems, for output each week recently. Refineries are about to come back on line with a vengeance, and at that point, we should expect to see a steady decline in the year-on-year deficit in inventories. Right now, we seem to be stuck with a disturbing trading pattern. Crude oil and gasoline prices seem to start each day on a positive note, but by the end of the trading day, we also seem to have had some kind selling come in which the gains have been pared or compromised. Traders seem to be thinking more and more about the impact of higher prices for food and fuel on economic growth. There is one simple rule: What someone spends on food or fuel cannot be spent again on Apples or Kindles.

At some point, we have to expect to see this bull market come to a sudden end. We cannot say that we have seen signs of it coming, yet, but we do have overbought pressures mounting in all three major gasoline charts. Daily, weekly and monthly charts are all showing overbought pressures here, and we have to expect these pressures to lead eventually to an important correction.

FMX Newswire

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Bentek Energy

• Gulf Coast Production Analytic Report – Alabama Offshore Production Shows Effects of Mobile Bay Lateral Maintenance.
• Supply Demand Balance Analytic Report – Weekly EIA Storage Figures Confirm Strong April Demand.
• Texas Observer – Regional Prices Move Little With Quiet NYMEX Close.
• Power Burn Analytic Report – Southern Power Burn Continues To Decline.

Platts

• Russia raised gasoline export duty for May to $408.30/mt from an expected $304/mt in a bid to limit exports and resolve a domestic shortage.
• Petrobras has found a new oil accumulation with a potentially recoverable volume of 350 million barrels in Brazil's Campos Basin pre-salt.
• About 175,000 Hydro One customers in Ontario are without power Thursday after high winds moved through the province.

Bloomberg

• Crude Oil Falls From Highest in 31 Months; Heads for Eighth Monthly Gain.
• Sinopec’s Profit Growth Surpasses PetroChina on Smaller Oil-Refining Loss.
• Total Agrees to Buy SunPower for $1.38 Billion
• Oil May Rise as Dollar Drops on Fed Low Interest Rate Policy, Survey Shows.

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