Morning Petrospective – August 8, 2011

elling continued overnight on Thursday into Friday morning, and it was largely more of the same: Investors were looking at a failed global economic recovery, debts handcuffing national fiscal policies and a panicked dash for safety … which changed destination suddenly and capriciously. We started last week with the potential for a financial catastrophe – which was realized. But, ironically, the catastrophe we had last week was not based on the reasons we had for one on Monday. And it came about before anyone had seen the July jobs numbers.

Those numbers were better than expected as the Labor Department showed an increase in non-farm payrolls of 117,000. The DJIA, S&P, Nasdaq and other equities indices jumped on the news, and oil prices rallied along with them. But, those rallies were spikes and prices very quickly dropped back to negative territory. The DJIA had been up 171 points before falling. By 10:40 AM, the DJIA was down 15 points. And, at that time, crude was down 38 cents, even as refined products were holding onto minor gains.

The real problem was in Europe, and observers, one after another, spoke about European leaders being “behind the curve.” August has been a sacrosanct holiday month in Europe for generations, and government leaders always take time in August for themselves. This year, that stubborn insistence is hurting the global economy. Europe’s leaders would counter that they devote 11 months to their nations and the world. August has traditionally been their time off for family.

Above and beyond that, those who are still on the job just are not feeling the urgency that is being felt and expressed by markets. One European official told traders to ‘stay calm, breathe deeply and look at the underlying fundamentals.’ It was a less inspiring message than markets had been hoping to hear.

Despite all the bearish factors, prices were extremely oversold going into a weekend. That brought a steady stream of short-covering and bargain-hunting coming in through the session. By 1 PM, the DJIA had rallied 122 points and crude oil was down only 43 cents. The euro was up 150 points at that stage, and it was helping refined products, which were up 5.89 cents in gasoline and 3.33 cents in heating oil. The main factor in the early afternoon was news that the ECB was willing to buy Spanish and Italian debt – provided both countries commit to fresh austerity measures. Italy would need to balance its budget now rather than two years from now and it would need to commit to welfare and union reform. And there was talk about new pan-European bonds that would provide positive aspects of fiscal union – in addition to a political and currency union.

Crude oil ended up 28 cents, with gasoline up 6.80 and heating oil up 4.78 cents a gallon. At that point, at 2:30 PM, the DJIA was up 84 points and the euro was up 190 points. It was a decent rally, but it did not negate the bearish activity seen earlier in the week. And we do not believe that it altered the underlying change in market sentiment. Two weeks ago, asset prices found it easier to advance than to decline. We were in an economic recovery that faced headwinds. As we end this week, we are in a period of economic stagnation and the recovery is not assured. More than half the traders we spoke with expect a double-dip recession, although there is a great range of difference over how severe that recession will be.

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 Begins Downward Trend.
• Supply Demand Balance Analytic Report – Demand Drops 3.1 Bcf/d As Cooling Demand Begins Downward Trend.
• Texas Observer – Texas Demand Surpasses Summer 2010 Record.
• Nuclear Plant Status Analytic Report – Outages Jump Nearly 1.5 GW Over the Weekend.

Platts

• Discussing the deal to double fuel economy standards and its implications.
• India's Gujarat bans ships over 25 years old after coal carrier sinks.
• ExxonMobil to sell Indonesia Aceh LNG assets after review of gas output.
• National Fuel Gas says search for Marcellus Shale joint venture partner is most likely over.

Bloomberg

• Crude Tumbles to Almost Eight-Month Low After S&P Downgrades U.S. Rating.
• GDF Suez Close to Selling 30% of Unit to CIC.
• Commodity Currencies a Refuge as Intervention Riles Havens.
• Syria Deaths Spur Growing Condemnation.

Technical Recap

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