Energy prices ended fractionally lower on Tuesday in very quiet trading. In fact, we are getting the impression that investors may be sensing that many markets have done enough on the upside in recent months, in that the sharp rallies have more than discounted the better macro numbers we have been seeing. The one market that fits this profile best is the US equity market, where stocks lost ground for a second consecutive day, this despite better-than-expected housing starts, building permits, and producer price inflation readings. In addition, although industrial production fell slightly more than forecast, (down by 1.1%), it was roughly in line with estimates and did not surprise negatively. Nevertheless, the numbers failed to ignite much buying in any of the major markets, a departure from the type of reaction we were seeing more frequently during much of April and May.
EIA numbers are out later on Wednesday and should provide the energy market with more direction. API numbers released late on Tuesday were somewhat bearish, sending prices slightly lower. Crude stocks were off by 1.3 million barrels on the week, slightly less than the 1.7 million barrels expected. Gasoline inventories rose by 2.1 million barrels, going against a forecast draw of 100,000 barrel drop, and the most bearish item in the report. Distillates rose by 881,000 barrels, matching expectations for a build of 800,000 barrels. Crude imports were up 832,000 bpd to 9.35 mbpd.
Of course, also hanging over the markets is the unsettled Iranian situation. On Tuesday, the government said it was willing to conduct a partial recount of the ballots only for this sop to be rejected by the opposition. We now could see even more protests before the government likely caves and agrees to fresh elections. If it does not, we can expect the opposition to call for national strikes, a tactic that was used quite effectively to help topple the Shah. That would certainly get the attention of the oil markets which, so far, have been rather blasé about the monumental events unfolding in Iran and their potential impact.
In Other News from Reuters...
* The head of ConocoPhillips said oil prices have gotten ahead of fundamentals. “We have felt that an oil price between $70 and $80 (a barrel) is a good balance to promote investment, continue to replace reserves and keep production up, as well as a balance with respect to the cost to the consumer,” he said. However, he went on to say that the rise in prices has been faster than expected.
* Distillates held in floating storage around the world currently total 62 million barrels, up 51% since the end of May, this according to traders consulted by Reuters.
* The President of Nigeria is expected to announce an amnesty program for militants in the Niger Delta this week. One high profile militant has said he will consider participating if the military withdraws its troops from the region. “We are not weak or tired of fighting and will not surrender until the issues of unconditional and general amnesty for all the militants, development of the Niger Delta, and troops’ withdrawal from the region are addressed,” a spokesman representing the militants was quoted as saying.
* Venezuelan lawmakers approved a law on Tuesday to allow President Hugo Chavez’s government to increase its stake in the petrochemicals industry. The law calls for a minimum 50% state control in petrochemicals projects.
European North Sea crude oil quotes as reported by Reuters: Forties were bid up to dated BFOE minus 25 cents for a July 2-6. Oseberg for loading July 9 was offered at dated BFOE plus $1.15, traders said.
U.S. gasoline/distillate quotes as reported by Reuters: In Gulf Coast trading, M2 was up a penny at 3c under July. On distillates, prompt LSD was at 1.25c over and low sulfur diesel was at 4.2c under. In New York Harbor, M2 was up at 3.5c under. Jet was up half a cent at 3.25c over and ULSD was at 3.25c over.
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