Morning Petrospective – July 6, 2011

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il prices advanced steeply on Tuesday as traders returned from the Independence Day holiday weekend to find that buyers were back in control of this complex. Traders were talking about a positive manufacturing report on Friday, it being reinforced by a factory orders report that showed an increase of 0.8% (against expectations for an increase of 1.0%) and better prospects for the second half of the year. What might be more interesting, though, is what traders ignored. Standard & Poor’s said it would view any Greek rollover of debt as a default and QE2 was laid to rest last week.

Traders also ignored a stronger US dollar and a weaker DJIA. The US dollar was higher in trading overnight and it was higher again on Tuesday. It had been very important last week and the week before, but on Tuesday it seemingly meant nothing. Equities were under pressure most of the day. They ended down 12.90 at 12,569.87, but that was better than it could have been.

If the bears had been in control, we could be writing now about a factory orders report falling short of expectations, weaker equities, a stronger dollar, the end of QE2, unexceptional demand for oil and lackluster economic data as well as the S&P decision on Greece. In fact, it would have been a much easier report to write had prices finished in the red. They didn’t and that tells us something all on its own.

There was a good deal of “fact-fitting” with traders talking about vague optimism for the second half and about how well subscribed the auctions for strategic oil barrels have been. Nothing really fit well for us and the reasons used to describe the advance of the last few days have hung like designer dresses on homeless models. They just don’t look right.

In the final analysis, this is what we now have that works for us:

clip_image001 Despite the end of quantitative easing, interest rates are still low enough – negligible – to make commodities and risk or assets worth buying. There is nothing else to buy. Bonds are moribund. Real estate seems to have a long way to go before it is anywhere near the edge of the woods. So, hard and paper assets like equities and commodities make sense to those holding huge tranches of cash.

A number of companies are still benefiting from low dollar values and strong developing world demand. They are generating earnings and leading equities higher. With developing countries using a higher energy input to production than developed nations, energy demand grows more quickly in the countries moving up. Traders are relying on them to provide demand for oil.

And funds, ever needful of profits still see commodities as the place to be, apparently even when economic news is poor and the dollar is stronger. And the July 4th seasonal apparently did kick in.

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

  • Power Burn Analytic Report – Power Burn Down 1.2 Bcf/d on Cooler Temperatures.
  • Texas Observer – Persistent Demand Keep HSC Prices at a Premium to Henry Hub.
  • Nuclear Plant Status Analytic Report – Comanche 01 Expected to Return To Service Tomorrow.
  • Supply/Demand Balance Analytic Report – US Dry Production Drops 780 MMcf/d Led By Declines Gulf Receipts.

Platts

  • Shares in Sterling Energy hit a fresh all-time low Wednesday after it gave up on hopes of commercial oil at a key well in Kurdistan.
  • Oil markets are currently well supplied and there is no need for an increase in OPEC's output, Iran's Mohammad Aliabadi said Wednesday.
  • Italy's Eni has started oil production from its wholly owned deepwater Appaloosa field in the US Gulf of Mexico.
  • The return, for now, of Hugo Chavez. But if he goes, is there an oil impact?

Bloomberg

  • Crude Oil Declines After China Rate Increase, Portuguese Debt Downgrade.
  • China to Open New Shale Areas to Tap Reserves Exceeding U.S..
  • South African Coal Exports to India Fall 21% in First Half, mjunction Says.
  • Kan Apologies for Former Minister’s Remark to Governor of Tsunami-Hit Area.

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