The Energy Report for Thursday, September 03, 2009

Shanghai surprise.
To stimulate or not to stimulate that is the question. Can China bail out oil bulls once again? Oil prices rebound over night after flat lining yesterday after a big rally in the Shanghai stock exchange. Shanghai stocks surged 4.8% driven by a rebound in financials and metals giving hope once again to that old Chinese oil demand story. Overnight Liu Xinhua, Vice Chairman of the China Securities Regulatory commission, said they will seek to promote a stable and healthy marketplace. Those comments took away fears that the government would quickly remove stimulus and reign in overcapacity in the Chinese industrial sector. It also calmed fears that the Chinese government would default on speculative contracts and reign in equity and property speculation. Once again China has given new life to a market that prices bounced off near two week lows. The bulls continue to make their case but it is obvious that the fate of the market is out of their hands. With inventories still on the heavy side and the seasonality working against them, they will need help keeping the long term uptrend intact.

The bulls were hoping that help would come in the form of the weekly Energy Information Agency Inventory report. They wanted a bullish like the American Petroleum Institute report the day before was but it was not to be. There were bullish as[ects to it but because the crude draw was a sliver of what the API reported, it was almost bearish by comparison. The API reported that crude supplies fell by 3.2 billion barrels yet the EIA showed commercial crude oil inventories fell by 400,000 barrels an almost bearish number by comparison. It is even more bearish when you focus on the fact that crude oil supply stands at 343.4 million barrels 13.9% above year ago levels and well above the five year average.

Yet when it comes to gasoline things were not all that bearish. In fact you might even say that they were bullish. The EIA confirmed the big gas draw reported by the API reporting total motor gasoline inventories falling by 3.0 million barrels last week. Yes supplies of gas are still well above the five year average yet we do not have as big of cushion as we have in the crude. Dow Jones says that US gasoline stocks are at 205.085 million barrels in the week ended Aug 28 and are sufficient to cover 21.6 days of current demand which is the lowest level since May 22. Stocks are the lowest since Jun 12 and 4.1%, or 8 million barrels, above a year ago.

And demand is up. Dow Jones says that demand in the latest week averaged 9.478 million barrels a day, up 4%, or 373,000 b/d, from a week earlier, and also the most since May 22. Stocks were sufficient to cover 22.9 days of demand a week ago. The current level of demand cover is 1 day above the year-earlier level and slightly more than the 5-yr average level of 21 days.  US implied gasoline demand jumped 4%, or 373,000 b/d, to 9.478 million barrels per day in the week ended Aug 28, EIA data show. That's the highest level since May 22. Demand was 0.6%, or 54,000 b/d, above a year earlier. That's the first year-on-year rise in gasoline demand since Jun 12, when it was up 103,000 b/d.

OPEC! Does anybody care?? They will keep production steady!
Bloomberg news reports that, Iraq, holder of the world's third- largest crude reserves, exported less oil last month as domestic use of the fuel rose, the state-run marketing company said. Exports slipped to 2.009 million barrels a day from 2.037 million barrels a day in July, the oil marketing agency's head Falah Al-Amri said by telephone today. The country sold 62.3 million barrels at an average price of about $68 a barrel last month. Iraq, dependent on oil for most government revenue, is seeking foreign investors to help boost crude production after six years of conflict and prior sanctions destroyed its infrastructure. The country completed one bidding round for oil development rights in June and aims to assign additional contracts in a second auction by the end of this year.
Do not forget to check me out every day on the Fox Business Network! Sign up for the PFGBest Webinar!! Email me at pflynn@pfgbest.com or you can call me at 800-935-6487 to open your account.

Sell October crude apprx 7250 - stop 7420.

We're short October heating oil from apprx 19000 - stop to 18000!

Sell October RBOB at 18500 - stop 18930.

Sell October natural gas at 310 - stop 317.


Phil Flynn
Senior Market Analyst
800-935-6487
312-563-8344
pflynn@pfgbest.com