Tuesday, May 17, 2011

Oil Prices Settle Lower on Tepid Data 18/5/2011

June crude oil futures settled down on lower-than-expected industrial production and capacity utilization readings.
Light sweet crude oil for June delivery fell 46 cents, or 0.5%, to settle at $96.91. A breach of $95 a barrel would have very bearish consequences for funds caught on the long side in crude, according to the Oil Price Information Service. Brent crude oil for July delivery fell 65 cents, or 0.6%, to $110.19.
On Tuesday, the Federal Reserve said that industrial production was flat in April compared with an increase of 0.7% in March. Analysts, on average, were expecting a 0.4% increase in April.
The lower-than-expected reading came as total vehicle assembly dropped mainly because of parts shortages that resulted from the earthquake in Japan, the Federal Reserve said.
Industrial production is a measure of the physical output of the nation's factories, mines and utilities.
"As for today, all eyes will be on industrial production and capacity utilization," Schork Report Editor Stephen Schork said. Measures of manufacturing strength and economic growth and demand have important implications for oil demand.
The Federal Reserve on Tuesday also reported that the capacity utilization rate -- the percentage of available resources being utilized by factories, mines and utilities -- was 76.9% in April versus 77% in March and the consensus estimate of 77.6%
Christin Tuxen, senior analyst at Danske Markets, expects commodities, including oil, to be range-bound the rest of the year -- with risks still primarily on the upside.
"We are looking for oil and base metals to struggle to find a clear direction in coming months," said Tuxen. On the one hand, Danske foreign exchange strategists are calling for a stronger euro against the dollar, which would increase the foreign purchasing power of commodities, including oil, since many of them are priced in dollars. "On the other hand, our economists' expectations for data to continue to point to a soft patch in global growth should be a constraint for prices to move higher."
The euro was strengthening against the dollar by 0.5% at $1.4223. The euro was regaining strength Tuesday after European finance ministers approved a 78 billion euro ($111 billion) rescue package for Portugal, and bond auctions by both Spain and Greece went smoothly, offering the markets some relief on the debt situation in eurozone periphery countries.
Energy companies were trading in mixed territory.
Marathon Oil (MRO_) was falling 0.7% to $49.93, Exxon(XOM_) was flat at $80.29, ConocoPhillips(COP_) trading sideways at $71.48, BP (BP_) was rising 0.7% to $42.77, Total S.A.(TOT_) was higher by 1.4% to $58, Hess Corp.(HES_) was up 1.2% to $75.47 and Chevron(CVX_) was ticking 1.2% lower to $100.39. **
On Wednesday, the markets will be paying close attention to the Energy Information Administration's weekly U.S. crude oil and gasoline inventory updates. The information will be released at 10:30 am ET and is expected to show builds in both oil and gas.
In other energy news, JBC Energy Research Center notes that while Japan's electricity generation in April dropped 8.4% from year ago levels, mainly due to a 24% decline in nuclear power generation, the use of crude oil for direct-burning jumped to around 85,000 barrels per day in April, more than double the volume seen a year earlier