Morning Petrospective – May 19, 2011

his week’s DOE report showed unexpected drawdowns in crude oil and distillate stocks, which had been expected to grow by 250,000 to 1.1 million barrels in distillate and by 700,000 to 1.7 million barrels in crude. Gasoline stocks grew, but just by 119,000 barrels (expected up 600,000 to 1.3 million barrels). These numbers were supportive, and as “headline” figures they had a disproportionately large effect on oil prices. On the bearish side, refinery utilization increased by 1.5% and crude oil imports dropped by just 394,000 bpd.

Both of those numbers had been significantly more bullish in Tuesday afternoon’s API report, which showed a decline of 0.5% in refinery utilization and a decline of 1.163 million bpd in crude oil imports. The story those numbers told in the API report was one of reduced refinery interest in producing more. The DOE effectively shattered those forecasts. Those numbers fit in the bearish category, but they do not attract the immediate same-day attention that the inventory changes tend to trigger.

Four-week average demand figures were also bearish this week, with total demand now down 2.89% - compared to down just 0.45% a week ago. That is a huge move lower in a four-week moving average. Four-week gasoline demand is now down 2.28%, compared to down 2.40% a week ago. Much more worrying, though, was the move of four-week distillate demand to levels below those seen a year ago. Four-week distillate demand is now down 2.90%. Last week, the same average was up 4.47%. That is an extremely negative development, but it was not reflected in Wednesday’s trading. It is not an urgent headline figure.

Traders were also talking about the FOMC minutes, which were released on Wednesday. They show a Federal Reserve engaged in spirited discussions about how to wind down the Fed’s pro-growth portfolio. These factors were clear: The Fed is done with quantitative easing. There is no mandate within the Fed for a “QE3.” The Fed wants to raise interest rates and it wants to sell mortgage-backed securities, which it owns rafts of. It needs to be careful doing either of these and it is expected to take years to unwind its positions.

The dollar was higher in early morning trading overnight, but it peaked around 9 AM and gave back almost all of its gains by noon. It rallied again from around 1 PM to 4 PM. It was not really a major factor in trading yesterday.

Technically, crude oil prices have a potential triple bottom pattern with lows at $94.60, $95.00 and $95.25 (see next page). As long as prices hold above $94.60, the bulls seem to have the initiative here. The bears now need to break prices down below $94.60 to resume the bearish move.

We should start to get physical market buying in gasoline ahead of the Memorial Day Weekend over the next few days. Traditionally, resellers start pulling product two weeks before the holiday, so next week’s DOE report should reflect Memorial Day consumption ahead of time. Meeting this demand almost certainly had something to do with the higher refinery utilization figure seen in this week’s numbers.

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

• Pacific NW Observer – Weaker Demand Across West Reduces Inbound and Outbound Flows.
• Supply Demand Balance Analytic Report – Offshore Production Rebounds as Warmer Temperatures Weigh on Demand.
• Industrial End Users Analytic Report – EPA Delays Boiler Rules.
• Power Burn Analytic Report – Power Burn Expected to Move Into the 20 Bcf/d Range Next Week.

Platts

• Japan needs 7-10 mil mt/year more LNG to replace lost nuclear power, according to Jogmec. 
• Solving Moscow / Beijing oil price spat would smooth natgas talks, says Russia's deputy PM. 
• Nigerian parliament postpones debate on oil reform bill, as lawmakers call for more time.
• Japan's April naphtha imports for ethylene production up 4.5% from March, says METI.

Bloomberg

• Oil in N.Y. Trades Near Highest in More Than a Week on U.S. Supply Decline.
• U.S. Reactor Owners See Retrofits to Avoid Blasts.
• Fukushima May Have Leaked Radiation Before Tsunami.
• Glencore Shares Rise After $10 Billion IPO.

Technical Recap

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NG Options Report

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