IS(M) energy demand coming back?

ISM into the wild blue yonder flying high into the sky. Where the heck did that come from? The Institute for Supply Management gave the market just what the doctor ordered with a shocking good reading on manufacturing. Why was it so shocking? Well some of the regional manufacturing reports like the Philly Fed and the Empire State numbers were so lousy. Maybe the Chicago Purchasing Manager report should have given a clue but instead of lousy we go the first increase in four months with an expansive jump to 56.3, up from 55.5 in July. That was much higher than the expected 53.2 expectations and came on the heels of a strong PMI number in China!

And what was probably even more important was that the ISM Employment Index part of the report that registered 60.4% in August, which is 1.8 points higher than the 58.6% reported in July. According to ISM this is the ninth consecutive month of growth in manufacturing employment. An Employment Index above 49.8%, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) data on manufacturing employment and should also beef up the expectations on Fridays whopping large monthly jobs report.

It should also booster oil demand expectations as well as the market in the month of August was pricing in a manufacturing slowdown but now has to price in a possible expansion. That is one of the reasons the oil market basically ignored what was a bearish Department of Energy’s Energy Information Administration report. The EIA reported that U.S. crude oil refinery inputs averaged 14.8 million barrels per day which was below average. The same could be said about refinery runs that came in at 87% of their operable capacity last week. Gasoline production decreased last week, averaging 9.3 million barrels per day. Distillate fuel production decreased last week, averaging 4.3 million barrels per day. Crude oil according to EIA data showed an increase by 3.4 million barrels, gasoline inventories decreased by 0.2 million barrels and distillate fuel inventories decreased by 0.7 million barrels from last week.

As far as imports, crude oil imports averaged 9.7 million barrels per day last week, down by 202 thousand barrels per day from the previous week. Gasoline imports last week averaged 1.1 million barrels per day. Distillate fuel imports averaged 196 thousand barrels per day last week. The EIA also said that the national average retail regular gasoline price decreased for the third week in a row to $2.682 per gallon on Aug. 30, 2010, 2.2¢ per gallon less than last week but 6.9¢ above a year ago. The national average retail diesel fuel price also decreased for the third consecutive week to $2.938 per gallon, 1.9¢ per gallon under last week but 26.4¢ over a year ago.

Besides all of the macro-economic data that is coming out today traders have to watch the weather. For now the storms seem to be more of a threat to demand than to supply but perhaps this latest storm could change that. Tropical Storm Gaston has formed and seems to be starting off further South than Hurricane Earl Daniele and Fiona. Not to mention of course there is even another tropical wave forming right behind it. With all this activity and holiday weekend approaching some traders may not want to try to ride out these storms. Gulf track or not these storms may start to become more bullish the closer we come to the weekend whether they are expected to midis the Gulf or not.

Big News for Heating Oil Traders! The Wall Street Journal is reporting that the CME Group Inc. is considering replacing its New York Harbor heating-oil contract—the oldest energy futures contract—with an ultra-low-sulfur diesel-fuel contract sometime in 2013. The move comes as state governments require home-heating oil consumers to use fuels with lower sulfur content, effectively making the current heating-oil futures contract specifications obsolete. New York's low-sulfur requirements come into effect in 2012; New Jersey's begin in 2016. The exchange operator will make its decision in the next couple of months, an official said. Front-month October heating oil futures settled 2.5% higher at $2.0411 a gallon on the Nymex.

Phil Flynn is senior energy analyst for PFGBest Research and a Fox Business Network contributor. He can be reached at (800) 935-6487 or at pflynn@pfgbest.com

About the Author
Phil Flynn

Senior energy analyst at The PRICE Futures Group and a Fox Business Network contributor. He is one of the world's leading market analysts, providing individual investors, professional traders, and institutions with up-to-the-minute investment and risk management insight into global petroleum, gasoline, and energy markets. His precise and timely forecasts have come to be in great demand by industry and media worldwide and his impressive career goes back almost three decades, gaining attention with his market calls and energetic personality as writer of The Energy Report. You can contact Phil by phone at (888) 264-5665 or by email at pflynn@pricegroup.com. Learn even more on our website at www.pricegroup.com.

 

Futures and options trading involves substantial risk of loss and may not be suitable for everyone. The information presented by The PRICE Futures Group is from sources believed to be reliable and all information reported is subject to change without notice.


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