Oil prices got pounded on Monday, not necessarily on any specific news, but rather on the realization that markets have perhaps done too much, too soon, and thus were in need of a sizable correction. This was all the more apparent in view of the less-than-stellar macroeconomic numbers that have come out of the US of late. We have alluded to this in previous commentary, highlighting the fact that the recent US numbers have been unusually soggy, and were thus capable of reversing the price gains made in recent weeks. The March index of leading economic indicators was the latest report to disappoint on Monday, with the measure falling by .3% for its 10th straight monthly decline, and coming in below estimates.
Given the high degree of correlation between crude oil and the S&P 500 (some 84% since early March), Monday’s steep 290-point drop in the Dow also did its fair share of damage to the crude oil markets. Ongoing worries about US banks triggered the equity sell-off, especially after the Bank of America posted its latest earnings report. Although the bank beat estimates, it unnerved investors by saying that it would have to post an additional $6.4 billion in reserves to fight off deteriorating loans. Reports that the government may swap its debt for ownership stakes in the banks was another source of consternation, as was the stronger dollar, which managed to hit a one-month high against the Euro. The dollar has not been much of a price driver in recent weeks, but its solid advance on Monday dovetailed the severe weakness in US equities and proved too much for commodities. The greenback gained ground after the ECB President indicated more rate cuts were in order.
Chart patterns for most energy contracts, which were mostly unchanged as of last Friday on a week-over-week basis, have deteriorated noticeably in the wake of Monday’s sell-off. Crude’s up-channel in particular, (see our WTI chart on page 2), has been taken out, and we could now possibly sell off to the 45-$46 level basis June before stabilizing. May WTI expires on Tuesday, and could be a further source of weakness. In addition, EIA numbers are out Wednesday, and with more builds expected, (see table alongside), we suspect the path of least resistance to be somewhat lower still, at least until the end of the week, when more macro numbers out of the US have a shot at changing sentiment.
In Other News from Reuters...
* A total of around 100 million barrels of oil is currently being stored aboard ships, this according to a Total executive. He added that 70% of that was crude, with 30% being stored in refined products.
* Saudi Aramco has delayed the development of its 900,000 bpd Moneefa offshore oilfield project until 2012, this according to industry sources. Construction of oil processing facilities will now start in January 2010.
* The IEA does not expect OPEC to cut output again at its May meeting. It also said that it does not expect oil demand to rebound until early 2010.
* Exxon-Mobil reported a problem on Sunday with its gasoline-making FCC unit at its 567,000 bpd Baytown, Texas, refinery, according to a filing with regulators. In a related item, ConocoPhillips said it will be starting maintenance work this week on precipitators of two gasoline-making fluid catalytic cracking units at its 124,000 barrel-per-day Borger, Texas refinery.
* China’s top refiners saw their fuel inventories fall by about 15% in March, as sales rose on the back of increased demand. As of end-February stocks were reported at 14.85 million tons, meaning the end-March level should be around 12.67 million tons, equivalent to about two weeks of consumption.
* Refining margins in the U.S. Northeast were up by $1.24 last week at $5.75 a barrel, this according to Credit Suisse calculations. In the Rockies, margins rose $2.40 to $18.35 a barrel. Midwest margins were up $1.10 to $9.16 a barrel, while Gulf Coast margins rose 89 cents, to $9.45 a barrel. On the West Coast, margins rose 31 cents, to $17.69 a barrel.
* WSI Corp predicted that we will see 11 tropical storms in the Atlantic in 2009, of which six will become hurricanes. In December it forecast that there would be 13 tropical storms, including seven hurricanes. In total, WSI expects to see two storms reach Category 3 status or higher.
* T. Boone Pickens said crude oil prices will hit $75 a barrel by year-end due to a reduction in supply.
European North Sea crude oil quotes as reported by Reuters: European North Sea crude oil quotes as reported by Reuters: Forties for May 1-3 sold at dated minus 20 cents, roughly equal to June minus $1.22. Traders said there are around 11 Forties cargoes still available from the May loading program.
U.S. gasoline/distillate quotes as reported by Reuters: U.S. gasoline/distillate quotes as reported by Reuters: In Gulf Coast trading, M2 was at 9.25c under. On distillates, ULSD was at 1.5c over. In New York Harbor, M2 was up at 4c under. Jet was down at 3.5c over, ULSD was up at 7c over, low sulfur diesel was at 1c under and heating oil was up at 1.5c under.
All known news events have been factored into market prices
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