Morning Petrospective – July 7, 2011
il prices had a topsy-turvy trading day on Wednesday, and crude oil finished in negative territory while refined products ended with gains. This is unusual and is not what we typically see at this time of year. Refinery utilization usually reaches a seasonal peak around Independence Day and margins typically peak at that time as well. With margins still expanding, especially on WTI, we could see some refineries elect to keep running higher levels than might otherwise be the case. Prices were reacting, alternately, on Wednesday, to a number of competing variables.
Traders ignored a stronger US dollar on Wednesday, at least in the case of refined products prices. One could make an argument that they influenced crude oil prices. The DJIA was up 56.15 points on Wednesday, and that seems to have been reflected by products but not by crude. In other words, neither of these was the dominant factor, or we might have had everything moving in the same direction.
The seasonal is clearly very strong for prices to have ignored the stronger dollar through this week. And then, on Wednesday morning, China raised interest rates for a third time this year, in a further effort to cool that country’s economy. It now costs 6.56%, up from 6.31%. Deposits pay 3.5%, up from 3.25%, which will encourage even more savings in a country that needs to encourage consumption, at least from a global perspective. From the government’s perspective, consumer prices were up 5.5% and inflation is expected to come in at 6.2%, according to a Bloomberg survey, in its report due out next week. Analysts believe that attempts to rein in inflation have borne fruit and the consensus is that China may be able to stop raising rates and reserve requirements soon.
German factory orders were unexpectedly higher in May, with domestic machinery orders leading the way. While many in Europe are struggling, Germany continues to flourish. Analysts had expected a decline of 0.5% and were shocked by an increase of 1.8%, hot on the heels of a 2.9% increase in April. For the fiscal year, orders increased by 12.2%.
Portugal’s credit rating was cut to “below investment grade” by Moody’s as ratings companies continued to be the uninvited boors at the party, spitting in the punch bowl while everyone else is bringing “pot luck” for dinner. Moody’s is convinced that Portugal will follow Greece and ask for an additional round of help.
In the US, the ISM index of non-manufacturing businesses dropped to 53.3 in June from 54.6 in May, it was revealed on Wednesday. Analysts polled by Bloomberg had predicted a decline to 53.7 so this was yet another disappointment in US economic data. Still, other measures suggest a stronger second half, as the Federal Reserve has predicted. We will get a look at the ADM employment figure, the weekly jobs report, the DOE report and the EIA underground storage data on Thursday, with the Labor Department’s monthly jobs report out Friday. Prices seem headed higher regardless of the numbers.
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