Morning Petrospective – September 26, 2011

he oil complex was hammered at the end of last week, or on Wednesday and Thursday, as funds seem to have suddenly decided that the world is headed into recession again. The markets seem to have lost any faith that governments are capable of leading us back to solid growth here. And, judging by the decline in open interest, which started more than two weeks ago, this judgment had been a long time in the making. It now seems that funds have been losing patience for the last several weeks. Selling knocked prices down when they failed to make new highs.

We noted on Friday that we felt that the markets were telling us that “large numbers of well-heeled investors had decided that QE3 was either not coming or that it would not be adequate to the task at hand.” As we also noted, Operation Twist is a kind of quantitative easing, but it does not seem to enough of the “QE3” that many investors were hoping for. In any event, the selloff we had late last week seems pretty clear in a number of different ways in telling us that the Fed has not done enough. And, the fiscal side of it is so disorganized that one could say that it has not done anything.

One of the themes that is being visited and revisited in the comments being made by those running for president in 2012 is that the US should not need the government to do “something.” According to these candidates, the government and the Fed should just get out of the way. If it freed American business to succeed, it would pull the economy out of its doldrums.

We do not feel that anyone has seen what would happen if government did get out of the way. And we do not expect that we will see that soon. It will still be a theme for 2012. But, in last week’s selloff, there did seem to be a very plaintive undercurrent of desire for “something more” from government. It could just be that way because the government will not get out of the way, but we still saw the desire go unfulfilled.

It is possible that the revelation in this market was less tectonic than we might have believed at first. It is certainly possible that investors just decided that the Greek debt problem would not go away, and their liquidation of assets across the board could be an extrapolation of the euro-zone sovereign debt problem alone. Every week for months, now, we have returned to some pressing new need in the euro-zone. Maybe, that’s what this is all about. Of course, that could just be a part of it … .

It may be that a number of investors has gotten to the point where they feel it is impossible to pay $14 trillion back. They may have decided that the US will ultimately have to default on that debt. And they may also have come to the conclusion that political needs will not allow for any real stimulus – from either the Fed or the government. They may see a recession or even a depression as being inevitable now.

We are not certain exactly what may have suddenly changed the minds of investors who always seemed to want to buy oil. We just see that something does appear to have changed.

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 This Week Expected to Increase 14 Bcf Over Last Week.
• Industrial End Users Analytic Report – Over All Industrial Demand Mostly Flat Throughout Weekend.
• Supply/Demand Balance Analytic Report – Higher Demand Forecast This Week; CGT Receipts Climb From Acadian Line.
• Canadian Observer – Volatility in Western Markets Expected This Week.

Platts

• Europe's refining sector needs championing across EU, says industry body EUROPIA at Brussels conference. 
• Shale gas a key driver in the burgeoning US petrochemicals 'renaissance'. 
• Nigerian sabotage shuts in 25,000 b/d of crude oil since late August, says Shell. 
• Russia may agree to join Ukraine and the EU to operate Ukraine's gas pipeline system.

Bloomberg

• Crude Oil Rises From Seven-Week Low on Hopes for European Rescue Measures.
• Shell’s Arrow Unit Wins Bow Energy After Sweetening Offer to $524 Million.
• Crude Oil Advances 1.1% to $105.06 in London as ECB Weighs Bond Purchases.
• Crude Trades Near 6-Week Low on Speculation European Crisis to Cut Demand.

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