June 30, 2011

At quarter's end, we need to take a look at how prices have been moving in the 2Q since all the factors that were evident at the end of March were still in play today.
The Greek sovereign debt crisis is still with us even if the Greek parliament has passed austerity measures. The dollar is still in a dance with the euro and right now the dollar is falling while the euro is rising because analysts believe that the Eurozone will find a way to solve the debt problems even while demonstrators are in the streets clashing with police.

It is worth noting that NYMEX crude has fallen much more in the 2Q than Brent or gasoline or distillate. U.S. refiners may be able to make greater margins since this is the driving season and they may be taking advantage of the seasonal driving patterns and supply and demand. IEA and the U.S. government may have jumped the gun on the SPR release as today NYMEX passed its settlement position on June 22 the day before the SPR release was announced.

For the quarter, WTI-$11.30,$95.42; Brent-$4.88,$112.48; RBOB-7.6¢,$3.0316; HO-15.71¢,$2.9327.

June 29, 2011

EIA publication of the previous week's numbers led to crude and product increases as the inventory draws for crude and gasoline were greater than expected. Though distillate saw a build in inventory it was significantly less than expected and New York harbor heating oil also jumped up. Early in the day news of the austerity measure passage by the Greek parliament caused the dollar to fall and consequently crude prices started to rise. The effect of the IEA release is now alsmost negligible.

Today, WTI+$1.88,$94.77; Brent+$3.62,$112.40; RBOB+12.01¢,$3.0097; HO+9.45¢,$2.9202.

June 28, 2011

The effects of last week's announcement that IEA would release 60 million barrels over a thirty day period seem to be dissipating very quickly. Today's settlements for WTI and Brent showed a 52% and 41% increases from last week's lows. The fall of the dollar caused by the impending resolution of the Greek sovereign debt problem proved to be a stronger push than the pull of more supply.

Last week's gasoline consumption was up 1.9% to 19MBD and the next two weeks will show even more consumption because of the July 4th holiday. QE2 ends Thursday and that may ease the inflationary push of higher commodity prices. Tomorrow's release of the Cushing inventory figures will be contrasted with the moves in the financial markets in a market that still does not know its direction.

Today, WTI+$2.28,$92.89; Brent+$2.79,$108.78; RBOB+8.21¢,$2.8896; HO+6.08¢,$2.8257.

June 27, 2011

The U.S. Commerce Department published data on stagnant consumer spending but the dollar fell against the euro and so WTI fell marginally and Brent rose marginally. There is probably still some carry over from the IEA release of strategic petroleum reserve but the greater effect would have been on Brent as there is abundant inventory in the U.S.

Today, WTI-55¢,$90.61; Brent+47¢,$105.99; RBOB+3.039¢,$2.89075; HO+1.46¢,$2.7649.

June 24, 2011 - 697th Anniversary of the Battle of Bannockburn

The announcement of the SPR release had only a one day effect on NYMEX crude because of the large inventory in Cushing. Brent continued to fall because there will be a greater effect of the IEA release in Europe where there is no large inventory being held. Since the release is sometime in the near future, Brent has started to trade in contango. Contango trading patterns occur when traders believe that supplies will be adequate in the future. The opposite is backwardation where traders act on the belief that supply will be tight in the future.

The dollar's continued strength versus the euro help to keep WTI prices above yesterday's settlement. It is hard to forecast the direction of crude prices as releases of SPR is so infrequent and the market conditions are very different. Prices were already heading lower and this action by the IEA countries only seems to make analysis more difficult. There is an added effect on the Brent premium because Brent is falling at a greater rate and reducing its premium over WTI.

For the week, WTI-$1.85,$91.16; Brent-$7.69,$105.52; RBOB-16.94¢,$2.7766; HO-23.33¢,$2.7503.

June 23, 2011 - 2

The IEA announcement caused a major change in the movement of the two crude bench marks today. Because the shortfall for Europe is caused by the Libyan Civil War, the IEA's move also caused the premium for Brent over WTI to shrink from $18.80 to $16.32in one trading session. The problems in North Africa and the Middle East have raised the premium from an average of $0.76 last year to $15 to $20 most of this year. Today, WTI-$4.39,$91.02; Brent-$6.87,$107.34; RBOB-13.57¢,$2.8376; HO-17.32¢,$2.7817.

June 23, 2011

The International Energy Agency (IEA), the "autonomous" intergovernmental organization dedicated to responding to physical disruptions in the oil markets, unexpectedly announced today that it would be releasing 60 million barrels of crude over 30 days to make up for the loss of supply of Libyan light sweet crude. This led to a 4.6% decrease in NYMEX crude futures and 6% drop in Brent. Gasoline also fell 4/6% while distillate declined 6%. The market is generally wary of non-commercial interference and the lack of prior notification is causing unease among traders.

The market unease is that such interference normally leads to greater volatility and this move is less about bolstering supply which is at all time highs in the U.S. but more about the politics of gasoline prices. Gasoline prices were approaching $4 as a national average and this would leave an indelible mark on the minds of U.S. voters already struggling with food inflation caused by quantitative easing. People believe gasoline price increases at the pump and food price escalation at the check stand no matter what economists say about the low growth of the consumer price index.

The U.S. share of this release is 30 million barrels. The fact that the dollar rose while the euro fell today also helped to push prices down. The bad economic news has kept crude prices low this month as unemployment seems inflexibly high and housing starts are intractably low. When Fed Chairman Bernanke announced that he was clueless about the economy, there was no longer much optimism about the economy.

June 22, 2011

It may be that summer is really here and gasoline demand will now be stronger until Labor Day. It was reported that gasoline consumption was up last week 1% while supplies were down 500 thousand barrels. WTI rose 2.2% following the gasoline supply drawdown and a crude inventory draw of 1.71 million barrels. Supporting this increase was the Papandreou government's vote of confidence victory which sets the stage for more austerity moves by that government to comply with the requirements of the French and German governments for loans to cover the sovereign debt problem. Another bullish news item was the 3.1% increase in refinery utilization to 89.2, the highest in almost a year.

Today, WTI+$2.01,$95.41; Brent+$3.26,$114.21; RBOB+9.07¢,$2.9733; HO+6.49¢,$2.9549.

June 21, 2011 - Summer Solstice

Looking for good news amid all the negative economic reports, analysts determined that the vote of confidence in the government in Greece deserves a mention especially as it led to a rise in the euro and the consequent fall of the dollar. Unless something big happens, Tuesday is a day in limbo while the market waits for the publication of last week's inventory. There are expectations of an inventory decline but the two crudes have been going in opposite directions for most of the past week as WTI ekes its way up while Brent seems to want to close the premium gap by dropping more significantly. This seems to indicate that Europeans don't see supply as a big problem in the near term.

Today, WTI+14¢,$93.40; Brent-74¢,$110.95; RBOB-2.89¢,$2.8826; HO-4.2¢,$2.89.

June 20, 2011 - 67th Anniversary of the Marianas Turkey Shoot

There was no turkey shoot today. WTI barely advanced while Brent continued to fall for the 4th day. There seemed to be some forward movement in resolving the Greek sovereign debt problem and the dollar got stronger and equities were in the positive territory. There is no clear direction for the market at this time though the trend is bearish because supply is plentiful and demand growth is weak.

Today, WTI+25¢,$93.26; Brent-$1.52,$111.69; RBOB-3.45¢,$2.9115; HO-5.13¢,$2.932.

June 17, 2011

The Greek sovereign debt problem continues to be problematic. This problem affects the entire euro zone because European banks have made large loans to the Greek government and the Greek public opposes any downsizing of their entitlements. The riots in the streets are giving politicians second thoughts about making the necessary actions that will make Greece solvent.

Today the IMF has reduced its forecast for American economic growth. It is getting harder and harder to spin the poor state of the American economy. Consequently, despite the lack of additional OPEC production, demand in the US is not seen to grow in the second half of the year and the additional production may not be needed.

For the week, WTI-$6.28,$93.01; Brent-$5.57,$113.21; RBOB-7.17¢,$2.946; HO-12.18¢,$2.9833.

June 16, 2011

New unemployment claims down, housing starts up but at very low levels, WTI flat while Brent dropped as the debt problem with Greece continues and threatens greater economic problems for Europe as the euro fell again and the dollar rose. Right now WTI is in a holding pattern because most analysts believe it should not go lower while Brent is being pushed by potential tightening of supply and pulled by the falling euro.

Today, WTI+14¢,$94.95; Brent-$3.08,$114.02; RBOB+2.59¢,$2.9494; HO+1.9¢,$3.0038.

June 15, 2011

There was only bearish news for oil today. Average demand fell 3.2% when compared to the same period last year. Refinery utilization was down to 86.1% from 87.2%. The New York Federal Reserve manufacturing index fell to -7.8 from 11.9. More telling for the industry was that distillate demand, both jet and diesel, fell 5.2%. Thus crude fell below $95 for the first time since early February. With the Greek debt problem hanging over Europe, the euro fell and the dollar rose. The bad economic news led the DJIA to fall 1.5%.

Today WTI-$4.56,$94.81; Brent-$3.11,$117.10; RBOB-14.11¢,$2.9235; HO-14.1¢,$2.9848.

Flag Day, 2011

Are analysts clutching at straws when they base buying decisions on the fact that sales were not as bad as expected? Or was it the fall of the dollar and the news that China's government is trying to curb inflation and facing worker unrest in Southern China? Whatever the reason, crude and products all rose today. Everyone's attention now turns to the EIA inventory report that comes out tomorrow morning.

Today, WTI+$2.07,$99.37; Brent+$1.11,$120.21; RBOB+5.78¢,$3.0646; HO+2¢,$3.1258.

June 11, 2011

Rather than be bound by the price hawks of OPEC, Saudi Arabia has informed its refiner customers in Asia that it will increase production by 500,000 barrels next month. Coupled with the stronger dollar, WTI fell 2.6% while Brent fell a more modest 0.7%.

The weekly numbers tell a different story: WTI-93¢,$99.29; Brent+$2.94,$118.78; RBOB+3.46¢,$3.0177; HO+4.84¢,$3.1051.

June 9, 2011

There was a carry over effect today of the OPEC decision not to formally increase production quotas as crude rose to its highest level in a month. Brent continued to increase at a higher rate and the Brent premium is now at $17.64 when all of last year it averaged about less than $1. There is a feeling among analysts that Brent more accurately reflects the market because NYMEX is unduly affected the Cushing storage inventory.

There was also a reduction in the trade deficit and this helped set the tone for the trading today. If there was any pull in the opposite direction it came from the preliminary jobless numbers that showed another increase.

Today, WTI+$1.12,$101.93; Brent+$1.63,$119.57; RBOB+5.95¢,$3.0398; HO+4.43¢,$3.1378.

June 8, 2011

Saudi Arabia and the Arab Gulf States were outvoted by a bloc led by Iran, Venezuela, Libya (Ghaddafi's representative arrived late), Algeria, and Ecuador. It was basically the pro-Western group vs. the anti-Western group and the anti-Western group won. What was voted down was only the formal recognition of the production by members and not necessarily any production increase since most of OPEC cheats by producing more oil than agreed. Coupled with the fall of crude inventory, price rose 1.7% over the previous day's settlement. The rising price reflects analysts' failed expectations but given that crude inventories were drawn down, crude did not really have a big increase.

Today, WTI+$1.72,$100.81; Brent+$1.16,$117.94; RBOB-1.16¢,$2.9803; HO+1.65¢,$3.0935.

44th Anniversary of the reunification of Jerusalem

The direction of prices for the next couple of days depends on what the OPEC countries want more: immediate price gratification and make no moves to increase production or work towards sustained economic growth and announce future production increases. Since OPEC quotas affect Europe more than the U.S., there was greater anxiety there and Brent went up 2% while WTI edged sideways barely in positive territory. OPEC members have been sending out a message that they will increase production but there are no official statements to that effect yet. The dollar fell today and that kept WTI from falling for a 3rd straight day. What happens tomorrow will depend on what OPEC actually plans to do.

Today, WTI+8¢,$99.09; Brent+$2.30,$116.78; RBOB+4.2¢,$2.9919; HO+5.96¢,$3.077.

D-Day + 67 Years

Today there was a hangover from last week's bad economic news. Coupled with loud calls for greater production from OPEC to forestall rising prices and it was likely that prices would fall. And they did.

Today, WTI-$1.21,$99.01; Brent-$1.36,$114.48; RBOB-4.32¢,$2.9499; HO-3.93¢,$3.0174.

June 3, 2011

Crude prices early on were falling because of the unemployment rate increase and the small numbers of jobs created versus the expectations. However, the dollar also fell on news that an agreement was soon to be reached concerning the soverein debt problem facing Greece. These two forces, bad economic news pushing the crude down and the falling dollar pulling crude up, led to a settlement price below yesterday but still above $100. Both gasoline and distillate made definitive increases while Brent presaged WTI but oppositely and barely increasing over yesterday.

Even in a holiday-shortened week, there are a number of price ups and downs but a week to week comparison shows how little the crude market really moved while products both had significant movements but in opposite directions. For the week, WTI-1¢,$100.22; Brent+$1.16,$115.84; RBOB-9.89¢,$2.9931; HO+6.62¢,$3.0567.

June 2, 2011

The supply news for crude and gasoline was bearish while the distillate report was bullish. Economic news was also bearish especially the credit report from Moody's. However, the dollar tanked against the euro and the sideways tilt was slightly to the bulls. Tomorrow's new jobless claims report will affect the market but the dollar's strength/weakness versus the euro so far has proved to be the main determinant of market direction.

Today, WTI+11¢,$100.40; Brent+$1.04,$115.57; RBOB-0.96¢,$2.9677; HO+3.52¢,$3.0439.