[DAILY PETROSPECTIVE] May 19, 2010

Early Evening Market Review for Wednesday

There was follow-through selling in trading overnight on Tuesday
night into Wednesday morning. Asian and European traders had
gone to sleep on Tuesday night (their times) and the DJIA and oil
futrures had been higher. When they reawoke on Tuesday night
and through Wednesday morning, they found that both markets
had turned over and finished in newgative territory. That lent a
certain downward momentum to asset markets this morning.

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 [DAILY PETROSPECTIVE] May 19, 2010

Oil traders also seemed reluctant to buy oil futures based on the bullish components
of Tuesday night’s API report. Crude oil and distillate stocks had draws instead of builds,
although gasoline stocks had dropped. Refinery use was up 1.0%, and crude imports had
their largest increase in memory at 2.5 mln bpd.
Shortly after 10 AM EDT on Wednesday, crude was down 30 cents a barrel. The DJIA
was down 80 points, but the euro had rallied more than a full cent, to $1.2315 in US
dollars and cents. Traders were waiting for the weekly DOE statistics, which came out at
10:30 AM EDT.
Traders had a mixed API report to respond to before the DOE release. And they were
trying to fit the April Consumer Price Index (CPI) into the bigger picture. The monthly
measure of consumer expenses was down DOE Report
0.1% in April, the first decline since March, Crude Stocks up 0.200 mln bbls
2009. The so-called “core rate” was Distillate dn 1.000
unchanged, completing the mildest 12- Gasoline dn 0.300
consecutive month change in 49 years. Utilization dn 0.48% to 87.94%
Capital Economics (CE) noted that the Crude Importsup 0.142 mln to 9.829 mln
annualized rate of gain in the 12 months bpd
ending with April was up just 0.9%, down from
the March rate of 1.1%. Even with oil prices steadily higher in April, inflationary
pressures have simply failed to develop. CE notes that the existing inflationary pressure
is not enough to corner the Fed into raising interest rates. The London-based economists
(CE) expect the annualized rate to be nearer 0.5% by the end of the year.
This takes one of the major assumptions of the risk-appetite, asset-hungry investment
crowd right off the table. Since March, 2009, the straight-line assumption has been that
higher equities would mean stronger economic growth and stronger energy (specifically
oil) consumption. A parallel theory had assumed that the low real interest rates
powering the “carry trade,” in vogue up until two weeks ago, would inevitably lead to
high inflation. While that may yet turn out to be the case, we can see no sign of that
being imminent.
In the event, the DOE report was seen as being mixed. By 10:40 AM EDT, crude oil
prices had fought their way into positive territory, trading with minor gains of 10-20
points. Refined products fought their way back towards unchanged, but did not make
positive territory their own in the first quarter of an hour after the DOE report. There was
nothing in this week’s DOE report that grabbed one by the shirt to say, “Hey, look at
this.”
The report showed a polar opposite (to estimates) in distillate stocks, which were
down a million bbls (as opposed to being up that amount), while crude oil stockds were
up 0.200 mln bbls on estimates for a build of 0.300 to 0.700 mln bbls, and it showed a
draw in gasoline stocks of 0.300 mln bbls, compared to estimates for a draw of 0.500 to
one million bbls. The biggest discrepancy was in crude oil imports, which the DOE
reported up 142,000 bpd, compared to API’s increase of 2.5 million bpd. Someone got
some zeroes misplaced between he two reports, we have to surmise.
By the final bell, crude oil prices were higher, presumably partly in response to a
weaker US dollar and partly in reaction to upbeat comments later in the day by the
Federal Reserve. Prices were oversold, but they only rallied in crude. June expires on
Thursday, and we expect that the expiration was a major factor.
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 [DAILY PETROSPECTIVE] May 19, 2010

Crude Oil Daily Technical Chart

*Note: Full report to be released tomorrow morning*

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