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.