November 30, 2010

On the last day of the month, we continue to talk about the daily movements but we also point out what happened over the past 30 days. There's continued concern about the sovereign debt problems of Portugal and Spain and now Italy and this has pushed the dollar higher and crude followed in the opposite direction. With Ireland's bailout now being worked out, the problem with the southern European countries' debt is now in the forefront. Added on top of this is the concern for inventories. The release of the EIA's report tomorrow should inform the markets where inventories were last Friday and prices should be set by the report.

As interesting as the day to day movements are, the month to month movements show some interesting facts. Crude gained $1.45, gasoline jumped 15.77¢, and distillate rose only 2.52¢. This seems to indicate a return of gasoline buying at retail while diesel, heating oil and jet seem to really stand still with such a modest gain in price and with winter having already arrived in many states.

November 29, 2010

Crude went contrarian today by going up even when the dollar got stronger while equities dropped. Increased retail sales over the weekend and a colder-than-expected winter temperature prediction have all led to a positive attitude about the direction of the economy and petroleum demand.

Today, crude +$2.02, $85.78; gasoline +7.42¢, $2.2845; distillate +4.32¢, $2.3594.

November 24, 2010

The fall in weekly jobless claims trumped the decline in crude stocks. Gasoline also showed a build while distillate showed a decline; as winter approaches distillate will continue to show greater demand. Equities and the dollar also rose. The dollar's rise normally would see crude going in the opposite direction but the good news on unemployment was foremost in traders' minds. Both gasoline and distillate showed major gains for the day.

Today, crude +$2.64, $83.89; gasosline 7.9¢, $2.214; distillate +7.12¢, $2.3214.

November 23, 2010

The first time I went to South Korea in the 1970s, a Korean friend pointed out to me that all the highways were constructed so that they could also be used as runways in case the North Koreans did something crazy. Park Chung Hee was the president of South Korea then and it was my thought that this was the way a general thinks when he is developing the resources of a country. The North Koreans have now done something crazy again this year by shelling an island off the west coast of Korea and killing two people while earlier this year sinking a South Korean warship an killed 46 sailors.

The artillery shelling and the South Korean return bombardment are causing jitters around the world and set off a fall in equities and help the dollar increase. The primary reason the dollar gained versus other currencies is concern about the Irish debt problem. We're back to worrying about the PIGS' (Portugal, Ireland, Greece, Spain) debt problem. The most worrisome of the PIGS is the Spanish requirements should a bailout be necessary. The tension caused by the Korean armed conflict and the Irish debt problem caused crude and products to fall even though it is anticipated that there will be an inventory draw in tomorrow's inventory report.

Today, crude -45¢, $81.25; gasoline -1.49¢, $2.135; distillate -1.65¢, $2.2502.

November 18, 2010

Once the news came out that the Irish were to agree to a bail-out, the dollar began to fall versus the euro and crude rose to complete the cycle. As product supplies tighten, gasoline futures increased sharply 3.33% in one day. Normally distillate would be leading the charge upward with cold weather moving in.

Today, crude +$1.44, $81.91; gasoline +7.2¢, $2.2312; distillate +4.29¢, $2.2959.

November 17, 2010

Everyone expected crude to rise when the EIA inventory report came out today showing another large draw. However, the Irish debt problem and the Chinese deciding to increase interest rates to dampen inflation are global worries and those events set up another fall in crude prices. The analysts are also paying attention to fundamentals. The refiners are buying less hoping to cut back on carrying costs and that is why inventory is down while demand is marginally better than a year ago. Since going to nearly $88 last week, crude has dropped four straight sessions and is now knocking on the door of $80 and below.

Today, crude -$1.75, $80.47; gasoline +0.35¢, $2.1592; distillate -5.6¢, $2.253.

November 16, 2010

When we think of volatility, we often think of the physical movement of prices in the markets. We should also think of the volatility of the mind. Yesterday, analysts said they were waiting for Wednesday's EIA report before making any big moves in the market. Today, prices fell by a lot. And there is a lot to think about.

Overriding all concerns is the Fed's intention to inflate the economy with quantitative easing. It did not work for Diocletian and it won't work for Bernanke. I don't think that Ben will be able to retire to his cabbages any time soon as Diocletian did after he issued his Edict on Coinage.

The Chinese and the South Koreans are doing the reasonable thing and using monetary policy to fight inflation. The Europeans are trying to find solutions to their debt problems and this has caused the euro to fall versus the dollar. Added to this news was the rumor that crude and product inventories have built once again and prices had to fall significantly.

Today, crude -$2.53, $82.22; gasoline 3.88¢, $2.1557; distillate -6.17¢, $2.307.

November 15, 2010

With mixed economic messages from the Commerce Dept. that retail sales were up but manufacturing was down, analysts are back to reading fundmentals of supply and demand. The large inventory drawdowns the past two weeks have pushed the price clost to $90 but late last week currency and global economic factors led to a major reassessment of petroleum demand and prices crashed. Today the market went sideways barely moving up or down for crude and products. The focus seems to be whether there will be a significant inventory draw or a build up.

Today, crude -12¢, $87.75; gasoline -0.63¢, $2.1945; distillate +0.73¢, $2.3687.

November 12, 2010

The market decided that it had been too exuberant about the economy and the prospects for economic growth for most of the early part of the month as they began to digest the counter-inflationary measures the Chinese are intending to impose. The Chinese have just finished berating Obama about the QE2 and then took measures to cut back inflation by announcing their intention to raise interest rates. A $3 drop in the price of crude is big news and represents the significant uneasiness within the trading community about how the global economy is doing. This happened on a day in which the dollar dropped in the currency markets which would normally be a signal for commodities to take the opposite course.

For the week, crude -$2.07, $84.87; gasoline -2.57¢, $2.208; distillate -2.5¢, $2.3614.

November 11, 2010

Veterans Day! Gerry, Albert, Victor, Patrick, John and Ben, thank you for your service. The first four men, my wife's brothers, served (Patrick still serves) in the U.S. Army from the Vietnam era until today. John is their cousin and was a corpsman in Vietnam. Ben, our collective brother-in-law, was a Marine in Vietnam. I asked Ben what he did when the North Vietnamese attacked, he said hide in the fox hole. I once asked my friend Alan, a Marine door gunner in Vietnam, if he was ever in a helicopter crash and what did he do. He said he was in two crashes and both times he fainted. He said he was fortunate because the other door gunner died in those crashes.

There was no fainting nor crashes today in the oil markets. The continuing draw on inventory presages the end of contango in the market. Equities fell, the dollar rose and China is buying more oil and so crude went sideways while there were small decreases in products. There was not a lot of trading on this holiday.

Today, crude +15¢, $87.84; gasoline -0.45¢, $2.355; distillate -1.3¢, $2.426.

November 10, 2010

Happy Birthday U.S. Marine Corps!

I still think of that Liberation Day party that the Guam Association of Utah celebrated at Roy in 2004. Somehow they found and invited five Marines who had participated in the liberation of Guam in July 1944, one of whom had been shot through the neck by a Japanese sniper. The Guam Association also invited a Marine who was a member of the pre-war garrison who surrendered to the Japanese Imperial forces on December 10, 1941, and spent the war in a prison camp. Honoring these octogenarians for their service of sixty years earlier was an incredible experience that more than matched watching the Marines marching at all those Liberation Day parades on Guam over the years.

The Administration may deny it but QE2 is inflationary and the results are already apparent. Today's crude settlement price was the highest since October 2008. The initial explanation is the draw on crude and product inventories was greater than expected. The real action is in the currency markets and the dollar's fall is causing the opposite reaction for oil. It should be noted that although refinery utilization is up slightly, it is still at only 82.4. Meanwhile imports are down significantly while demand is rising but mostly for distillate. Seasonal demand growth for distillate is expected as winter approaches.

Today, crude +$1.03, $87.69; gasoline +4.8¢, $2.231; distillate 2.84¢, $2.439.

November 8, 2010

Even though no one is expecting any real decision or news coming from the G20 Summit Meeting later this week, market watchers are still checking for signs and the market went sideways for the second straight day after the dramatic increases in price for crude last week. Today, the dollar and equities rose and oil played its part of the dance and fell. However, there are other signs that the market is watching. The status of inventory and the strength of demand are important when the currency market is uncertain. Gasoline also went sideways but down while distillate is gaining strength as we enter the cold season and demand for heating oil heats up.

Today, crude +12¢, $87.06; gasoline -0.33¢, $2.179; distillate +1.21¢, $2.3985.

November 5, 2010

The markets continued to ponder the inflationary actions of the Federal Reserve and the dollar continued to fall in the currency markets. The dollar's fall and the creation of 151,000 private sector/non-farm jobs in October led to significant increases for crude and products. Floating storage inventory is also drawing down as is product inventory across the U.S.

For the week, crude +$5.77, $86.94; gasoline +10.01¢, $2.1823; distillate +16.89¢, $2.3864.

November 4, 2010

The Fed has started inflating the economy, thus causing the dollar to fall. This has led to crude breaking the $86 barrier today for the first time since April. The normal movement in the markets is for crude to do the opposite of the dollar and be in tandem with equities. It did that today. The big news of the inflating dollar scheme by the Fed overshadowed the increase in unemployment announced today. The draw on product inventories also seems to help the price move up but the draw could also be related to decreased refinery utilization.

Today, crude +$1.83, $86.49; gasoline +3.93¢, $2.1758; distillate +4.4¢, $2.373.

November 3, 2010

May 3 was the last time crude settled this high. The dollar was stronger today but so is the economic outlook. Crude inventories rose but gasoline and distillate stock were drawn down. This seems to be more a matter of refinery utilization rather than supply but the market should work that out sooner or later. The printing of money or money expansion as Bernanke calls it is seen as positive and that added to the all-around good feeling that analysts were enjoying the day after the midterm elections.

Today, +77¢, $84.66; gasoline +2.71¢, $2.1365; distillate +3.59¢, $2.329.