Morning Petrospective – May 16, 2011
rude oil prices were higher into Friday afternoon, on a quiet, overcast Friday the thirteenth. Commodities prices, including those for oil futures, had been lower in earlier trading, but a rally came later in the day, despite a strengthening US dollar from about 4 AM on. The rally in oil prices helped the oil sector on the DJIA, and that pulled it from down 150 points to off just around 100 points at 3 PM. The weakness in oil prices had come on the weaker euro, but short-covering lifted all three oil contracts into the close. There was a debate as to whether dollar strength or euro weakness was a bigger factor.
Some of the short-covering had taken us back to the beginning of the week, when traders were worried about the possible effects of flooding on refineries. Most observers felt that the impact would be minimal, but the lingering worry was heavy enough to trigger short-covering before the weekend.
When we come back, provided all of the nation’s refineries are running without flooding damage, we expect traders to return their attention to the coming end of QE2. It was the single, biggest factor for us this past week, and we expect it to be an equally important factor as we head towards June.
Dow Jones noted that crude oil prices ended the week with three settles in a row beneath $100 a barrel, which was the longest streak of that nature since March 1st. Crude was flirting with prices in triple-digits, and strengthened on news that first-quarter euro-zone growth had reached 2.5%, against expectations for a gain of 2.2%. That pushed the euro higher and that, in turn, helped the oil market move higher. But there were lingering doubts about the entire sovereign debt issue, which continues to stalk countries like Greece, and those nagging worries kept the euro from building on its gains, and the unexpected weakness in the euro ultimately forced oil buyers onto their back feet. More than anything else, last week forced traders to take away one factor: The US dollar-euro relationship remains the strongest factor influencing oil and commodities prices. We need to bring that forward with us into this fresh week.
Last week, we also had the IEA lower its estimates for global demand. It was its first reduced demand estimate this year. It reduced its world oil demand estimate in 2011 by 190,000 bpd or by 0.2%. It still expects demand to be up 1.3 million bpd, or by 1.5%, to 89.18 million bpd. At the same time, lower output from Libya led to lower Opec output in April the IEA noted, and the IEA expects Libyan oil to be “absent” for the remainder of 2011. The rest of the cartel pumped 28.75 million bpd in April, which would be 235,000 bpd less than it pumped in March and 1.3 million bpd less than it was producing in February. The IEA says Opec will need to increase output to 30.1 million bpd in the third quarter to maintain the global supply balance. It sees current Saudi output at 8.8 million bpd. “Anemic US driving” demand is one of the biggest factors behind the reduction in the agency’s estimate. The IEA wrote, “High oil prices have finally begun to dent demand,” and it added, “Four dollar a gallon is likely to yield an anemic US driving season.” Weaker US driving demand was the main factor in the IEA reduction in global consumption forecasts this year.
Gasoline prices are down more than 40 cents a gallon from their high reached at the end of April. Theoretically, that should give us retail prices of around $3.58 a gallon nationally, before Memorial Day. If it does, that will be equivalent to a rebate of $160 million a day from the highs, or $58 billion on an annualized basis. Of course, this week will determine whether the rebate is expanded or is negated.
We continue to believe that the US dollar will be the biggest factor influencing oil prices. At this stage, the coming end of QE2 still strikes us as being the biggest factor influencing the US dollar. As long as the Fed does not announce or publicly consider a new round of quantitative easing or some similar policy, the US dollar is likely to rally or at least hold its own. That would be bearish for oil prices.
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.
Bentek Energy
- Canadian Observer – May AECO Basis Reaches Three-Year High.
- Supply Demand Balance Analytic Report – Demand Falls on Declines in Power Demand.
- Nuclear Plant Status Analytic Report – US Outage Levels Up 1.2 GW Over the Weekend.
- Power Burn Analytic Report – US Power Burn Declines 3.1 Bcf/d Over the Weekend.
Platts
- US oil rig count upward of the 1000 mark, surpassing the number of rigs drilling for natgas.
- IEA offers apparent contradictory messages of falling oil demand but, with a need for additional supply.
- North Asia medium range clean tanker freight rates firmer on more naphtha voyages and jet fuel to US West Coast.
- Shell signs heads of agreement to supply 2 mil mt/year of LNG to state-owned CPC Corp.
Bloomberg
- BP Seeks TNK Buyout to Save Rosneft Deal.
- Iran’s President Ahmadinejad to Run Oil Ministry After Minister Dismissed.
- Second-Largest U.S. Refinery Threatened as Mississippi Floods In Louisiana.
- Crude Declines on Concern Over Greek Bailout Talks, U.S. Economic Growth.
Technical Recap
Crude Options Report / Straddle Runs
NG Options Report
Market Prices
Premium Subscriber (click here to register):
Volumes & Open Interest
End Of Day Straddles
Settlements
To view our energy news and articles on your PDA or mobile device, click here.