Morning Petrospective – July 11, 2011

il traders were already asking themselves questions about higher prices early Friday morning, long before New York opened. They started taking profits on long holdings, based largely on a stronger US dollar. This selling became more urgent as the morning developed and it turned into a wave once the June unemployment figures were released. The ADP report had shown an increase of 157,000 jobs in June. Most estimates had been just below 100,000. In the event, though, the Labor Department showed a gain of only 18,000 non-farm jobs in June, which was a huge disappointment.

Last week’s Thursday morning (weekly) unemployment report showed 14,000 fewer applications for first-time unemployment benefits, which was much better than the 3,000 drop predicted by a survey of analysts. Most analysts take the ADP numbers with a grain of salt, but no one knew they would need an entire shaker- full.

Through the week, and especially on Thursday when refined products jumped nearly 14 cents a gallon for heating oil and nearly 13 cents a gallon in gasoline, traders had pointed at the ADP numbers and at the weekly government figures as signs that the economy was growing. Oil traders pictured these mythical new hires all driving alone to work in large SUV’s getting three miles to a gallon. And they already pictured them getting a fill-up along the highways, checking stray engine lights and tire pressure. But, these new drivers don’t actually exist. Their life-sustaining jobs don’t exist, not yet, at least.

This is where the true nature of markets becomes so crystal clear. If prices had really advanced on Thursday because of jobs data – and there really wasn’t that much else to hang a hat – then surely prices were going to give back all of Thursday’s gains, and possibly Wednesday’s as well. Not even close. Heating oil prices dropped all of half a cent – 56 points. Gasoline lost 3.44 cents, but the mismatch was as clear as day; this complex got plenty of mileage higher on anticipation of new jobs; and it refused to sell off when that promise was left unfulfilled. The market just wanted to be higher and no amount of bearish news could stop it.

That is the market we start this week with. It is getting overbought and is approaching levels that will make sense to sell against. But, the trend is higher and prices clearly want to advance. Or, at least they did want to advance last week.

We did get three draws in last week’s DOE report. The fact that the draws were less than expected did not matter. The stock market was higher last week. But, it has been a solid two months since it made new highs. The dollar has been moving sideways and it has not made fresh new lows against the euro since late April. Economic data is decisively anemic and it has not supported a solid recovery under way in two or three months. There is still fighting in Libya, but it has been two months since a new country was involved with an interest in change in the Middle East or North Africa. For a while, it was a new country – or two – every week.

So, this is not the market that had so many reasons for traders to buy. QE2 has ended (although there was talk of QE3 again after Friday’s employment report) and refined products demand is lower than a year ago. But, traders still like buying, despite a major lack of good reasons. That is the market we have here this week.

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 Remains Flat Over the Weekend.
• Industrial End Users Analytic Report – Update to Estimate Set for Release on July 12.
• Supply/Demand Balance Analytic Report – Warmer Temperatures Drive Demand in the Northeast.
• Nuclear Plant Status Analytic Report – Outages Decline to Year-Low to Meet Cooling Demand.

Platts

• Yemen's oil output fell to 160,000 b/d, roughly half last year’s average, on crisis that’s gripped country the past 6 months, ministry says.
• China's June crude intake fell 11.5% to 19.7 mil mt or 4.81 mil b/d, down for 1st time in 6 months. Product imports rose 2.7% to 3.4 mil mt.
• Australia's A$23/mt carbon tax has had a poor reception from the LNG export industry, which will pay a 50% concessional rate from July 2012.

Bloomberg

• Crude Oil Falls for a Second Day on Signs China, U.S. Fuel Demand May Slow.
• Northumbrian Gets $3.8B Bid From CKI.
• Macarthur, BlueScope, Shares Drop on Australia Carbon Tax Plan.
• Obama Aide Urges Saleh to Resolve Yemen Crisis.

Technical Recap

Crude Options Report / Straddle Runs

NG Options Report

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End Of Day Straddles

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