Inside Futures: Petroleum Complex Outlook

“Crude oil prices rose to a 1-1/2 month high but then fell back as they struggle to remain above $80 a barrel. Crude prices had risen to a 16-1/2 month high of $83.95 last month which was a 45% retracement of the 1-1/2 yr downmove from July 2008’s record high of $147.27 a barrel to December 2008’s 5-3/4 yr  low of $32.40 a barrel. Bullish factors include (1) the unexpected decline in weekly gasoline inventories  (-895,000 bbl versus expectations of a +550,000 bbl build), (2) the +29% y/y increase in Jan crude   processing by China, the world’s second-biggest energy consumer, as its expanding economy spurs  demand, and (3) the prediction from energy consultant Poten & Partners that China may boost its refining capacity by more than 10% by 2014, which may lead to further increases in its crude oil imports. Bearish  factors include (1) the rally in the dollar index to an 8-1/4 month high, which reduces demand for crude and  other commodities as a inflation hedge and as an alternative investment, (2) the larger-   than-expected increase in weekly crude oil inventories (+3.03 million bbl versus expectations of +1.9  million bbl), and (3) the larger-than-expected increase in the refinery capacity rate (+1.4 percentage points to 81.2% versus expectations of +0.2 to 80.0%), which bodes well for further increases of gasoline and distillates in the weeks ahead.”