Crude Oil

[setravis]

Thursday, March 24, 2011...

•               May crude oil prices this morning are trading up +61 cents a barrel and May gasoline is -0.46 of a cent per gallon. Crude oil and gasoline prices yesterday rallied to 1-1/2 week highs as the US and its allies prepare to attack Libyan leader Qaddafi's ground troops and after protesters clashed with government troops in Syria: CLK11 +$0.78, RBK11 +1.50.

                Bullish factors included (1) concern that Libyan oil output will remain reduced after US Admiral Locklear said that more air strikes will be launched against Libya in the "coming hours and days," (2) the spread of civil unrest to Syria, which bolsters concern that civil unrest may spread to other oil-producing areas in the region and further cut global oil supplies, (3) the larger than expected decline in weekly gasoline inventories which fell to their lowest level this year (-5.32 million bbl to 219.7 million bbl versus expectations of -2.0 million bbl), and (4) increased demand after total US fuel demand for the week ending Mar 18 rose +1% to 19.3 million barrels a day.

                Bearish factors include (1) strength in the dollar, which reduces investment demand in commodities, (2) the larger-than expected increase in weekly crude oil inventories (+2.13 million bbl versus expectations of +1.45 million bbl), and (3) the action by Britain's OBR to cut its 2011 GDP forecast to 1.7% from a Nov estimate of 2.1%, which signals reduced energy demand and consumption.

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Friday, March 25, 2011...

•               May crude oil prices this morning are trading up +13 cents barrel and May gasoline is +0.18 of a cent per gallon. Crude oil and gasoline prices yesterday closed mixed as allied air attacks on Libya supported prices while the lingering European debt crisis and an unexpected decline in US durable goods orders limited gains: CLK11 -$0.15, RBK11 +2.22. May crude posted a 2-week high but shed its gains and closed lower.

                Bearish factors include (1) concern the European debt crisis may worsen and slow the global economy and energy demand after European officials said a bailout of Portugal may total as much as 70 billion euros ($99 billion), (2) the unexpected decline in Feb US durable goods orders, which hints at economic weakness that may curtail fuel demand, and (3) the prediction from PFC Energy that OPEC may agree to an increase in production when it meets in Jun because of a "sustained" supply disruption from Libya.

                Bullish factors included (1) the weaker dollar, which boosts investment demand for commodities, (2) sustained allied attacks in Libya, which may further reduce Libyan crude output, and (3) an escalation of anti-government protests in Syria and Yemen, which may spread further civil unrest to oil-producing nations in the Middle East and North Africa.

[setravis]

With the passage of UN Resolution 1973, France, Britain, the United States, and several Arab countries intervened militarily in Libya to prevent attacks on civilians. This may very well avoid a Libyan civil war, and could save innumerable lives.

The effect of the UN action on ongoing and future Libyan oil production is difficult to say at this point. In order to help investors, I have examined some of the largest publicly traded oil companies to determine their exposure to Libya. I did this largely because when I tried to look up this information I couldn't find the information compiled in one place. Simply understanding who conducts business in Libya – and how much – I hope this to be useful to investors. Table 1 shows 9 of the largest oil companies and what percentage of their oil production occurs in Libya. I have also examined the what companies produce the most oil in Libya, and calculated what percentage of their annual oil production this represents. This information is summarized in Table 2. In all cases I used current production in Libya expressed as a percentage of total 2010 oil production. This information should help investors determine the extent to which their investments may be affected by events in Libya.



Several of the largest oil companies above have significant investments and exploration underway in Libya, but have no current production. Many had production facilities in the 1980s, but exited the country when the United States imposed sanctions on Libya in 1986. Following Kaddafi's agreement to give up his weapons of mass destruction in December 2003, sanctions were eased and by 2004 ExxonMobil (XOM) had restarted exploration in Libya and was subsequently awarded offshore drilling contracts in 2005, 2007, and 2008. BP (BP) signed an onshore exploration deal with Libya in 2007 for $900 million, and this deal apparently represents BP's single largest commitment. However, a BP spokesperson has said that they "are years away from any production." PetroChina (PTR) has some exploration offshore of India that has required evacuating a portion of its personnel in Libya, but no current production. Petrobras (PBR) also operates an exploratory unit offshore, and has pulled out a small number of staff.



The oil companies with the largest percentage of oil production in Libya are ENI (E) at 12% of production, Marathon Oil (MRO) at 12% of production, OMV Group (WBAG: OMV) at 10% of production, Gazprom (OGZPY.PK) at 7.4% of production. The large U.S. companies with significant Libya exposure are Hess (HES) at about 5% of production, and Conoco-Phillips (COP) at 3.3% of production. I couldn't find any other publicly traded companies with more than 3% exposure, although Total (TOT), Occidental (OXY), and Statoil (STO) all have some production in Libya.

However the current situation is sorted out in the near term, uncertainty is likely to be the hallmark of oil politics in Libya going forward. Even if the opposition prevails — and that is still unknowable — it is unclear who will eventually come to power and what policies the future leadership will pursue. While any future government will need the hard currency that Libya's oil reserves represent, the path to full production remains murky. Prudence would suggest that oil companies with exposure to Libya need careful attention.

These figures are compiled from a variety of sources. While some were from the annual reports of the companies involved, others were from secondary sources and I cannot completely vouch for their accuracy. I did try to use only the most reputable sources, but any investors intending to act on any of this information should conduct their own due diligence.

[setravis]

Crude Oil...
Nymex WTI recovered sharply. The fast up-trend is likely to eventually end in a blow-off, but will increase inflation fears and boost gold in the short/medium-term.

* Target calculation: 105 + ( 105 - 97 ) = 113

[setravis]

Monday, March 28, 2011...

•   May crude oil prices this morning are trading down -58 cents a barrel and May gasoline is -1.90 cents per gallon. Crude oil and gasoline prices last Friday settled slightly lower as European debt concerns offset a stronger US economy: CLK11 -$0.20, RBK11 -0.13. May gasoline posted a 2-week high but shed its gains and closed lower.

                Bearish factors included (1) strength in the dollar, which discourages investment demand for commodities, (2) concern that Japan's rebuilding process may be delayed after a spokesman for Japan's Nuclear and Industrial Safety Agency said one reactor core at the quake-damaged Fukushima Dai-Ichi power plant might be cracked and leaking radiation, (3) concern that the European debt crisis will worsen and slow the economy and energy demand, and (4) the larger-than-expected drop in Mar U.S. University of Michigan consumer confidence which tumbled to a 16-month low and may lead to decreased consumer spending and fuel demand.

                Bullish factors includ e (1) the larger-than-expected upward revision to US Q4 GDP, which indicates stronger-than-expected fuel consumption, and (2) the ongoing civil unrest in North Africa and the Middle East that threatens to spread to major oil-producers in the region.

[setravis]

Tuesday, March 29, 2011...

•   May crude oil prices this morning are trading down -$1.15 a barrel and May gasoline is -1.79 cents per gallon. Crude oil and gasoline prices yesterday closed lower on speculation that recent victories by Libyan rebels may speed up a resolution to the country's armed conflict and put Libyan oil back on the market: CLK11 -$1.42, RBK11 -2.19.

                Bearish factors included (1) the action by Qatar to agree to market crude from east Libyan oil fields that are now controlled by rebel forces, which eases concern that Libyan oil exports will be disrupted for an extended period, and (2) concern that a recovery in Japan will be delayed after Japan's chief government spokesman said a partial meltdown of fuel rods in the No. 2 reactor probably caused a jump in radioactive readings that will further complicate containment of Japan's nuclear crisis.

                Bullish factors include (1) the reversal in the dollar after the dollar index fell back from a 1-week high and closed lower, which boosts in vestment demand for commodities, (2) comments from Algeria's Oil Minister that the oil market is "well supplied" and there is no need to compensate for a decline in Libya's output, and (3) the stronger-than-expected Feb US personal spending, which shows strength in the economy that may bolster fuel demand.

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Wednesday, March 30, 2011...

•   May crude oil prices this morning are trading down -40 cents a barrel and May gasoline is -0.76 of a cent per gallon. Crude oil and gasoline prices yesterday recovered from early losses and followed the equity market higher: CLK11 +$0.81, RBK11 +1.60.

                Bullish factors include (1) the rally in the stock market, which boosts confidence in the economic outlook and energy demand, and (2) strength in gasoline on speculation that US gasoline inventories will decline for a sixth straight week when the DOE releases inventory figures on Wed.

                Bearish factors included (1) the stronger dollar, (2) the advance of Libyan rebels against Mummar Qaddafi's troops, which spurs hope the conflict in Africa's third-largest oil producer may end soon and start Libyan crude exports flowing again, and (3) the weaker-than-expected Mar US consumer confidence, which may lead to reduced consumer spending and fuel demand. Expectations for Wednesday's weekly inventory report from the DOE are for cru de oil stockpiles to rise +1.5 million bbl, gasoline supplies to fall -1.8 million bbl, distillate inventories to drop -1.0 million bbl and the refinery capacity rate to increase +0.3 to 84.4%.

[setravis]

Thursday, March 31, 2011...

•   May crude oil prices this morning are trading up +$1.10 a barrel and May gasoline is +2.08 cents per gallon. Crude oil and gasoline prices yesterday settled mixed as a larger-than-expected increase in weekly DOE crude supplies undercut crude while a larger-than-expected drop in gasoline inventories lifted gasoline: CLK11 -$0.52, RBK11 +1.37.

                Bearish factors included (1) the stronger dollar, which erodes investment demand for commodities, (2) the larger-than-expected increase in weekly crude inventories (+2.94 million bbl to a 3-1/2 month high of 356 million bbl versus expectations of +1.5 million bbl), and (3) reduced fuel demand after US gasoline demand dropped -2.3% w/w and -2.1% y/y to 8.87 million barrels a day in the week ended Mar 25, as higher prices have cut gasoline demand to lower than it was a year ago.

                Bullish factors include (1) strength in the stock market, which boosts confidence in the economic outlook and energy demand, and (2) strength in gasoline af ter weekly gasoline supplies fell more than expected (-2.68 million bbl to a 3-month low of 217 million bbl versus expectations of -1.8 million bbl).

[setravis]

Crude Oil...
Nymex WTI crude is consolidating below resistance at $106/barrel. Narrow consolidation would be a bullish sign. Reversal below $97 is unlikely at present, but would warn of a correction back to the long-term trend line. Upward breakout would boost gold in the short/medium-term.

* Target calculation: 105 + ( 105 - 97 ) = 113

[setravis]

Oil climbs to highest since 2008 on Libya conflict
Oil rises above $106 a barrel as pro-Gadhafi forces push back rebels

On Thursday March 31, 2011, 1:53 pm
NEW YORK (AP) -- The price of oil rose to a 30-month high on Thursday as fighters loyal to Moammar Gadhafi pushed back rebels from key areas in eastern Libya.

Benchmark West Texas Intermediate crude rose $$1.96 to $106.23 a barrel in afternoon trading on the New York Mercantile Exchange. At one point it hit $106.77, the highest it's been since September, 2008. In London, Brent crude rose $2.10 to $117.05 per barrel.

Battles between Gadhafi's troops and rebels have seesawed back and forth in Libyan ports and towns since mid-February, with the price of oil rising more than $20 a barrel since then. Energy consultants Cameron Hanover said traders are beginning to view the Libya uprising as a standoff for now. 'Without control of the air, Gadhafi's troops have been unable to hammer home their gains. And, without strong and well-trained ground forces, the rebels seem incapable of holding onto their gains. Optimism that Libyan oil might return to the market, seen earlier this week, was dashed."

Libya's oil exports, which went mainly to Europe, are shut down. The rebels have said they plan to start shipping oil again, although how soon that could happen is unclear. Libya exported only about 1.6 million barrels of oil a day, or 2 percent of global consumption, but energy traders worry that unrest will spread across the region to disrupt shipments from OPEC countries like Saudi Arabia and Iran. The Saudis are the biggest oil producers in the world, supplying about 8.4 million barrels a day. Iran produces more than 4 million barrels a day. Anti-government protests in those countries so far have been limited, although unrest continues in Syria, Bahrain and Yemen.

Meanwhile the Saudis are making good on a promise to make up for the deficit of Libyan oil. "Saudi Arabia is beginning to supply European oil companies with crude oil to help alleviate the shortfall from Libya," said Addison Armstrong, senior director of market research at Tradition Energy. "Saudi Arabian Oil Co. has sold three shipments of light, sweet crude for March and April delivery: two to Austrian oil company OMV AG and one to BP."

The Energy Department's Energy Information Administration released its weekly report on natural gas supplies on Thursday. It showed that the United States' abundant reserves grew by 12 billion cubic feet from the week before, to 1.624 trillion cubic feet. That is 4.4 percent above the five-year average.

"Shale plays have fundamentally altered the amount of domestic supply available, leading to large weekly injections," said energy analyst Stephen Schork, who writes the daily Schork Report newsletter. The Energy Department estimates that natural gas in the nation's shale deposits amounts to a 110-year supply.

Natural gas contracts rose 6 cents to $4.415 per 1,000 cubic feet. In other Nymex trading, heating oil added 5 cents to $3.1056 per gallon, and gasoline futures gained 4 cents at $3.0973 per gallon.

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Friday, April 1, 2011...

•   May crude oil prices this morning are trading yp +49 cents a barrel and May gasoline is +1.18 cents per gallon. May crude rose to a 2-1/2 year high of $107.65 a barrel in overnight trade after manufacturing data in China accelerated for the first time in 4 months. Crude oil and gasoline prices yesterday finished higher as the dollar weakened and after Libyan leader Mummar Qaddafi's troops forced rebels to retreat: CLK11 +$2.45, RBK11 +5.04. May crude rose to a 3-week high and May gasoline climbed to a contract high, while nearest-futures Apr gasoline posted a 2-1/2 year high.

                Bullish factors included (1) the weaker dollar, which bolsters investment demand for commodities, and (2) the action by Mummar Qaddafi's troops to repel the advances of rebel forces, which may prolong the Libyan conflict and further curtail Libyan oil production.

                Bearish factors include (1) the unexpected decline in US Feb factory orders, and (2) the statement from the IEA that crude oil prices are entering a "dangerous zone" for the global economy, which may already be seeing demand destruction due to high prices.

[setravis]

Monday, April 4, 2011...

•   May crude oil prices this morning are trading up +43 cents a barrel and May gasoline is +0.86 of a cent per gallon, both at fresh 2-1/2 year highs. Crude oil and gasoline prices last Friday rallied to 2-1/2 year highs and settled higher on signs of increased global demand along with intensified fighting in Libya: CLK11 +$1.22, RBK11 +3.84.

                Bullish factors included (1) the increase in Mar China PMI manufacturing for the first time in 4 months, which signals increased energy demand, (2) stronger than expected US economic data on Mar payrolls and Mar ISM manufacturing, which points to economic strength that may boost fuel demand, and (3) the action by Mummar Qaddafi's troops to repel the advances of rebel forces, which may prolong the Libyan conflict and further curtail Libyan oil production.

                Bearish factors include (1) weakness in European economic data after the Mar Euro-Zone PMI manufacturing index was unexpectedly revised down and Mar UK PMI manufacturing fell to a 5 -month low, which indicates decreased energy consumption, and (2) comments from New York Fed President Dudley who said not to be "overly optimistic about the growth outlook."

[setravis]

Tuesday, April 5, 2011...

•   May crude oil prices this morning are trading down -58 cents a barrel and May gasoline is -1.59 cents per gallon. Crude oil and gasoline prices yesterday climbed to 2-1/2 year highs and settled higher on concern that global oil supplies will be hindered as the civil war in Libya is prolonged: CLK11 +$0.53, RBK11 +2.10.

                Bullish factors included (1) increased fighting between rebels and troops loyal to Mummar Qaddafi in Libya, which fuels speculation that a protracted conflict in Libya will curtail global oil supplies, and (2) the rally in global stock markets which bolsters confidence in the economic outlook and energy demand.

                Bearish factors include (1) the stronger dollar, which reduces investment demand in commodities, (2) comments from IEA Director Tanaka that the "burden" that crude at more than $100 a barrel puts on the world economy is "worrisome" and may be as bad as in 2008, and (3) the prediction from the US Climate Prediction Center for a bove-average temperatures for much of the US from Apr 9 to Apr 13, which could reduce demand for heating fuels.

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Wednesday, April 6, 2011...

•   May crude oil prices this morning are trading down -18 cents a barrel and May gasoline is -1.49 cents per gallon. Crude oil and gasoline prices yesterday settled mixed as crude fell after China raised interest rates and the May ISM non-manufacturing index fell more than expected, while gasoline closed higher on expectations that weekly US gasoline stockpiles fell for the seventh consecutive week: CLK11 -$0.13, RBK11 +3.25. May gasoline posted a 2-1/2 year high.

                Bearish factors include (1) the action by China to raise interest rates, which may slow its economy and energy demand, (2) the weaker-than-expected Mar ISM non-manufacturing index, which signals reduced fuel demand, and (3) the outlook for weekly US crude supplies to increase when the DOE releases its inventory figures on Wed.

                Bullish factors included (1) the statement from Iran's OPEC governor who said OPEC has no plans for an emergency meeting on higher oil prices, which reflect political and social situatio ns rather than supply and demand, and (2) strength in gasoline prices on the outlook for weekly DOE gasoline inventories to fall for a seventh consecutive week on Wed. Expectations for the weekly inventory report from the DOE are for crude oil supplies to climb +2.0 million bbl, gasoline stockpiles to decline -1.9 million bbl, distillate inventories to remain unchanged and the refinery utilization rate to increase +0.5 to 84.6%.

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Thursday, April 7, 2011...

•   May crude oil prices this morning are trading up +9 cents a barrel and May gasoline is -0.41 of a cent per gallon. Crude oil and gasoline prices yesterday rallied to 2-1/2 year highs but finished mixed as gasoline closed lower on the smaller-than-expected drop in weekly inventories and crude settled higher after German factory orders surged: CLK11 +$0.49, RBK11 -0.84.

                Bullish factors included (1) the slide in the dollar index to a 1-1/2 week low, which boosts investment demand in commodities, and (2) the surge in Feb German factory orders by nearly 5 times estimates, which signals economic strength that may lead to increased energy demand.

                Bearish factors include (1) weakness in gasoline after weekly DOE gasoline inventories fell less than expected (-357,000 bbl versus expectations of -1.9 million bbl), and (2) comments from the UAE Energy Minister who said that world oil markets are "adequately supplied" and "the surge in prices is a reflection of geop olitics and natural disaster but not the fundamentals."