Morning Petrospective – September 13, 2011

t seems to keep coming back, week after week after week. At this point, it might be better for Greece to default and be done with it rather than continue to keep threatening to week after week. On Monday, markets were talking about increasing German reluctance to bail out Greece, which somehow managed to have its sovereign debt brought up yet again. This hurt the euro in early trading and it triggered fears that other weak countries in Europe might follow behind Greece. This weakness helped push oil prices lower in the early trading.

Eurozone equities markets were under selling pressure that was led by a crisis of confidence in European bank shares. Those share prices are already extremely depressed, and that fact of life hurt the euro and led to sympathy selling in US equities. By 1 AM Monday morning, the dollar was nearing 74 euro cents.

There was profit-taking in the dollar and that helped the euro and also helped to eat at some of the losses in US equities and in oil futures. At a few points, it looked like the selloff in assets – equities, currencies and commodities – might become severe. Once again, it looked like we could be headed for a meltdown.

The turning point came yesterday afternoon, when China was rumored to be offering to buy Italian bonds. This came just as investors were starting to talk about a Greek default as being inevitable. The fear has always been that a default by Greece would trigger subsequent defaults by Ireland, Portugal and Spain or even Italy. By being willing to backstop Italy, China could be drawing a line in the sand beyond which it is unlikely that any sequence of defaults would go. US equities and oil prices rallied on the rumors, although refined products still finished in negative territory.

Opec said on Monday, in its monthly report, “The weaker economic recovery is negatively impacting oil demand,” with data from key markets, the U.S. and China, already coming in lower than expected, OPEC said. “Required crude supply has been revised down in the third and fourth quarters, at a time when OPEC crude-oil production continues to increase. The perception of market tightness and worries of supply shortages in the fourth quarter appear to be easing. It is of critical importance to continue carefully monitoring oil market developments.” In other words, Opec is already talking about cutting production to prevent oil prices from reached prices low enough to help Western economies recover. As long as they take this short-sighted approach, oil prices will remain artificially high until consumers can no longer bear them.

Oil traders are looking for a large decline in crude oil inventories this week, with a moderate build in distillate stocks and a moderate drawdown in gasoline stocks. Utilization is expected to fall steeply.

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 – PNW and SW Power Burn Returning to Normal as Hydro Season Tapers Off.
• Texas Observer – Lower Demand Will Pressure Basis Downward.
• Supply/Demand Balance Analytic Report – West Production Plummets as Marcellus Production Returns.
• Industrial End Users Analytic Report – Demand Sample Continues Slide, Off 4% To Lowest Level in a Week.

Platts

• Effects of Spectra Energy's NJ-NY pipeline expansion project most likely to occur during construction.
• Bernie Sanders' release of CFTC data is creating calls for reform and a degree of anger.
• Platts OPEC expert Margaret McQuaile on why Libyan #oil output resumption needs swift return of foreign companies. 
• Libyan oil output loss stands at over 265 million barrels - the equivalent of 440 Afromax tankers.

Bloomberg

• Oil Rises a Second Day in New York on Forecast of Shrinking Inventories.
• China Expands Lead in Afghan Commodities by Adding Oil to Copper Mine Plan.
• Libyan Leader Jalil Pledges Respect for Law as Fighters Push Toward Sirte.
• Iran Connects First Reactor to Grid; Plant to Reach Full Output This Year.

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