Phil Flynn: I Have Confidence

I have confidence in sunshine, I have confidence in rain, I have confidence that spring will come again. But confidence in the economy may knock the confidence out of me. Strength may not lie in numbers but the numbers are not showing strength.
What can only be described as a stunning drop in consumer confidence went a long way in shaking the confidence of even the most steadfast bull. The Conference Board, after reporting an increase in consumer confidence last month, posted an ignominious drop from a lofty height of 56.5 reading in January to a pathetic 46.0 reading in the month of February.

What made this number feel even worse was it followed weak business confidence numbers in Germany leading to worries that Europe’s credit woes are having an impact on the business climate throughout the region. The IFO business climate index in Germany fell for the first time in eleven months, to 95.2 from 95.8 in January, below economists' forecast of 96.4 as concerns over Greece debt issues are taking its toll. These dual concerns gave a rise to the dollar and put pressure on commodities across the board as oil seemed to lead many commodities to the downside.

Oh sure it helped that it appeared that the strike in France is over and that the refinery shutdown was going to be settled. The Wall Street Journal Claire Rangel reported that Total said, "it had concluded talks with trade unions at its French refineries that could lead to the end of the strike that began over a week ago. The French oil major pledged to preserve refining operations in France for five years.

Refinery workers were angry over plans by Total to end refining operations at the sprawling Flanders facility near Dunkirk, which the company committed to keeping open in some form or another. However, Total didn't disclose its intentions for the refining operations at the site, which houses other activities.” This is bearish in two ways. One is obvious that France will be refining product. But the other bearish activity is not as obvious.

Increased French refining activity will add to the global glut of refining capacity. The problems with North Sea production and the Buzzard Oil field is an issue that the market can look beyond. Reuters News, quoting a source at the company, said that the North Sea Buzzard oilfield has started to increase output after a period of much diminished production. With production coming back, that will be one less thing that the bulls can hang onto.

Yet ultimately it was the drop in confidence that was the major factor in the big drop in oil. Let’s face it, even the oil bulls have to admit that the price of oil is being supported by confidence as in confidence that the economy will recover at steady inflation free pace and that demand in China will continue to reduce global oil inventories. Or perhaps confidence that OPEC will get back to being compliant in production cuts. Or confidence that the dollar will stay weak forever. This would allow an inflated oil price due to a weak dollar as opposed to traditional measurements of supply and demand. But if that confidence is shaken then oil will tumble.

I have confidence in spring time! And so does the natural gas market that has declared that for all intents and purposes spring has sprung. Natural gas continues to get pummeled ahead of today’s March expiration. Another sign of spring is melting snow. The snow melted and that had people feeling confident to go back to their cars and drive! The MasterCard SpendingPulse reported that gasoline demand rose 5.8 percent last week after last week’s snow induced 16 month low. The report showed demand at an average 9.36 million barrels of gasoline a day.

We are still maintaining our long term bearish outlook for petroleum. We see oil going down to the $40 region. Iran is still a concern as it appears sanctions are on the horizon. Still we feel the path of least resistance is to the down side.

You can contact Phil Flynn at pflynn@pfgbest.com or catch him each day on the Fox Business Network!



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Iraq Seals Deal with Russia's Lukoil-led Group

A consortium grouping Russia's private oil giant Lukoil and Norway's Statoil ASA on Sunday signed a final deal to develop one of Iraq's biggest oil fields, capping an auction process key to the OPEC nation's plans to boost output and generate sorely needed reconstruction revenues. The deal on West Qurna Phase 2 field in southern Iraq is the last of the 10 fields that Iraq awarded last year during two international licensing rounds as it looked to revamp an oil sector battered by years of sanctions, neglect and, most recently, postwar violence and political bickering.

The signing Sunday also offers some much needed political capital for Iraqi officials as they head into elections in March determined to show that they are actively turning the country around following the turmoil and instability that has defined Iraqis' daily lives since the 2003 U.S. led invasion to topple Saddam Hussein. "These contracts will bring in cash to Iraq, and move ahead plans to develop the infrastructure," said Oil Minister Hussain al-Shahristani, adding that these deals afforded Iraqis the chance to "look toward a bright future."

Although it sits atop the world's third largest proven reserves of conventional crude, Iraq currently only produces about 2.5 million barrels per day, a level still far below its pre-2003 war output. Officials say international companies like Lukoi and Statoil, which together won West Qurna Phase 2 in the December licensing round, are key to raising that output to over 12 million barrels per day in about six years.

Such production, viewed by analysts as unrealistic in that timeframe, would rival Saudi Arabia's. The kingdom, seen as the de facto leader of the Organization of the Petroleum Exporting Countries, currently produces over 8 million barrels per day, but has an overall output capacity in excess of 12 million barrels per day.

For the 15 international firms that won development rights in the various fields, the 20 year contracts were their first chance at access to Iraq since Saddam expelled foreign firms and nationalized the sector in the 1970s. Despite the tempting spoils, the auction results were mixed, with only 10 deals struck out of the 21 oil and gas fields offered during the two licensing rounds.....Read the entire article.

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Ready to Break or is it Hit The Brakes?

Can the oil bulls catch a break as the Senate Super Majority is broken? Well maybe they might have if it weren’t for the fact that China is hitting the brakes.

The election in Massachusetts gave oil bulls a thrill but news today out of China may change that bullish mood. The petroleum market reversed course yesterday as the market correctly predicted that Republican Scott Brown would pull off an upset victory in the Massachusetts special Senate campaign to fill Senator Ted Kennedy’s vacant seat. Or as Senate elect Brown would say “The people’s seat”. The man who will block the Democrats super majority and vote against the universal health care bill sent healthcare stocks soaring helping inspire the Dow on to 115.78 point rally turning oil around on its coattails. Yet today we may see the oil market come back down to earth as reports out of China may once again zap that bullish momentum.

Just when the oil bulls thought they might catch a break, China put the squeeze on. Reuter’s News reported that the Chinese government has told several major Chinese banks to hit the brakes by making them increase their reserve requirement ratio by half a percentage point. Not only that they told these lending institutions to stop lending money for the rest of this month.....Read the entire article.

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You’ve Lost That Bullish Feeling

You lost that bullish feeling, lost the bullish feeling. You’ve lost that bullish feeling now it’s gone, gone, gone.

The petroleum complex lost that bullish feeling failing to build upon that cold weather inspired bullish promise. After starting the year like a bullish gangbuster the oil markets seem to be coming back to earth as the supply side just gets harder to ignore. Crude ended last week on a 5 day losing streak as US inventories increased and the International Energy Agency added to the building bearish momentum and the key area for oil to take out is the 7700 a barrel range. Now the March contract has the bulk of the open interest and the market seems to fail to take out major support point during these roll over periods but the clock seems to be running out on the oil bulls.

Let’s face it, if you are very bullish what are your bullish arguments? The best one is China demand growth. Yet since China seemed to take steps to slow the economy by raising reserve requirements on their banks, that seemed to take some of the sting out of your best bullish argument. Yet overnight the Wall Street Journal reported that the Chinese Premier Wen Jiabao said that the [Chinese] government plans to maintain "reasonable and ample" money and credit supply in the first quarter, signaling it is unlikely to adopt drastic tightening measures before the domestic economy recovers further. Those comments seemed to give oil a bit of a bounce after testing the $77 a barrel range.

Mr. Wen also said Beijing aims to curb speculative property purchases as part of efforts to promote a healthy and stable development of the domestic property market. Wow, why didn’t Barney Frank think of that? He also said that China's government will take steps to ease energy supply bottlenecks in the first quarter and stabilize agricultural product price rises. Agricultural prices rises. Is that not inflation? Oops, I forgot to exclude food and energy.....Read the entire article.

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Weekly EIA Petroleum Status Report

U.S. crude oil refinery inputs averaged 13.8 million barrels per day during the week ending November 13, 31 thousand barrels per day below the previous week’s average. Refineries operated at 79 percent of their operable capacity last week. Gasoline production increased last week, averaging 9.1 million barrels per day. Distillate
fuel production decreased last week, averaging 4.0 million barrels per day. U.S. crude oil imports averaged 8.6 million barrels per day last week, down 77 thousand barrels per day from the previous week.

Over the last four weeks, crude oil imports have averaged 8.6 million barrels per day, 1.5 million barrels per day below the same four week period last year. Total motor gasoline imports (including both finished gasoline and gasoline blending components) last week averaged 584 thousand barrels per day. Distillate fuel imports
averaged 152 thousand barrels per day last week. U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) decreased by 0.9 million barrels from the previous week. At 336.8 million barrels, U.S. crude oil
inventories are slightly above the upper limit of the average range for this time of year.

Total motor gasoline inventories decreased by 1.7 million barrels last week, and are above the upper limit of the average range. Finished gasoline inventories increased while blending components decreased last week. Distillate fuel inventories decreased by 0.3 million barrels, and are above the upper boundary of the average range for this time of year.....Read the entire report.

Oil Falls After Industry Report Shows Increase in Fuel Supplies

Crude oil fell in New York after an industry report showed an increase in fuel supplies in the U.S., adding to signs demand has yet to recover in the world’s largest energy consumer.Oil pared yesterday’s 2.6 percent gain after a report from the industry funded American Petroleum Institute showed U.S. gasoline stockpiles climbed the most since January. The Energy Department report today is expected to show increases in the nation’s fuel inventories, according to a Bloomberg News survey.


“We’ve been expecting a demand recovery but we still haven’t seen much of a justification in the supply demand fundamentals,” said Toby Hassall, a research analyst with CWA Global Markets Pty in Sydney. “The underlying supply-demand profile still suggests the market could be vulnerable to a pullback”.....Read the entire article

Sinopec Closes China's Largest Overseas O&G Acquisition for $7.5B

China Petrochemical Corporation ("Sinopec Group") announced that the acquisition of Addax Petroleum Corporation ("Addax") was successfully completed after nearly six months of due diligence and negotiation. Sinopec Group signed the acquisition agreement at an offer price of CAD 52.8 per share on June 24, 2009. It was approved by the Chinese regulatory authorities on August 6th. All pre-requisite conditions have been satisfied, hence Sinopec Group announced the successful closing of this transaction today. Addax Petroleum Corporation is an independent oil producer, established in 1994 and headquartered in Switzerland.....Complete Story

Schlumberger Profit Falls as Clients Slash Budgets

Schlumberger Ltd., the world’s largest oilfield-services provider, said second-quarter profit fell 57 percent after a plunge in energy prices prompted petroleum producers to cut spending. Net income dropped to $613 million, or 51 cents a share, from $1.42 billion, or $1.16, a year earlier, Schlumberger, based in Houston and Paris, said today in a statement. Excluding costs for job cuts, profit was 68 cents a share, 4 cents higher than the average of 24 analyst estimates compiled by Bloomberg. Sales fell 18 percent to $5.53 billion.....Complete Story



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Iraq Warily Moving Ahead on Contracts With Oil Companies

On Monday, when Iraq puts development rights to some of its largest oil fields up for auction to foreign companies, the bidding will be a watershed moment, representing the first chance for petroleum giants like ExxonMobil to tap into the resources of a country they were kicked out of almost 40 years ago. Yet, there are widespread doubts about whether Iraq is ready for a sudden infusion of capital from international oil corporations.....Complete Story

SBM Suffers 14.6% Profit Slide, OPEC Considers Next Cut

"SBM Suffers 14.6% Profit Slide"
Offshore contractor Single Buoy Moorings reported final results for 2008 in line with its preliminary announcement with net profit of US $228 m which was down 14.6% from $267 m in 2007....Complete Story

"OPEC February Production Down 28.07 Million Per Day"
The 12 members of the Organization of the Petroleum Exporting Countries pumped an average 28.07 million barrels per day (b/d) in February, as the oil producer club continued its efforts to slash oversupply and prevent oil prices falling further....Complete Story

"Oil Rises More Than $4 as OPEC Members to Consider Fourth Production Cut"
Crude oil rose more than $4 a barrel, the biggest gain in three weeks, before OPEC meets this weekend to consider a fourth production cut....Complete Story

Crude Oil Industry Headline News

"Pemex Plans $20B E&P Investment to Boost Production"
Pemex plans to invest nearly $20 billion this year in exploration and production, with $2.2 billion slated for Cantarell and $2.3 billion for Chicontepec....Complete Story

"A Rebound in Oil Prices May Presage Pick Up in Demand"
Oil dropped and rebounded after the EIA reported a larger-than-expected build-up in crude oil and gasoline stocks, a move that suggests the market is seeing a change....Complete Story

"Schlumberger's Net Falls 17%; Gould Says Job Cuts Affect 5,000 Worldwide"
Schlumberger Ltd., the world’s largest oilfield-services provider, said fourth-quarter profit fell 17 percent as a collapse in petroleum prices slowed exploration spending by customers. The company said job cuts “concern” 5,000 people worldwide....Complete Story