[DAILY PETROSPECTIVE] May 10, 2010

Early Evening Market Review for Monday

Oil prices advanced yesterday, gaining more than $2.00 a
barrel as traders reacted to a broad-based rescue package for
the euro and euro-zone economies. Early Monday morning, it
was described as being hundreds of millions of euros. As the
day wore on, it was being described as a trillion-dollar rescue
package.
This helped put pressure on the US dollar and it bolstered
equities. By 4 PM, the DJIA was up 400 points, after having
opened more than 400 points higher early in the day, before
selling off slightly.
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 [DAILY PETROSPECTIVE] May 10, 2010

The immediate trigger for lower prices across a number of asset classes seems to be gone for now, but the
bigger question is whether this will lead to a complete reversal of last week’s dramatic set of declines. At this
point, we tend to expect to see some lingering negative results in a number of markets. But, as initial rallies
go, this was a strong one, and it leaves the bulls in position to build upon Monday’s gains.
The US dollar sold off steeply when this rescue package was announced, pulling all the way back to the point
of Tuesday’s breakout to the upside (by the dollar against the euro). But, while the DJIA and other equities
markets and even oil managed to hold up fairly well throughout a day of gains and losses, the US dollar fought
its way back most of the distance to Friday’s close, which was near that day’s lows. The dollar has been
trending higher for the last few weeks, but it was this Greek crisis that kicked prices up through the resistance
and into its current leg higher. It is difficult to fit Monday’s different reactions together to construct a unified
picture of the whole. We are not clear, yet, whether the stronger stock market reaction should be given more
prominence than the comparatively tame reaction, by the end of the day, in the US dollar.
Monday’s reaction does throw us back into the quagmire of trying to ascertain the relative importance of
equities, the dollar and oil market fundamentals. And, in choosing among these, we are not unlike
“Goldilocks,” of the “Three Bears” story. The reaction in equities was pretty strong, the reaction in the dollar
was very tame, and the reaction in oil came in bewtween those two.
Muddying the waters further, we have completely different fundamental interpretations of the rescue plan.
It should be most supportive for the euro, least supportive for oil, and somewhere in the middle for equities.
As a result, we have different expected responses and different actual responses, so far. The bottom line, from
an oil perspective, is that the petroleum fundamentals are bearish on thewir own and there is no real reason
for prices to be even where they are now – without help from equities or currencies.
On the oil front, alone, we learned that June maintenance in the North Sea will cut Brent output by a third.
We also had fresh signs of strong Chinese oil demand, with nearly record crude oil imports of 5.2 million bpd in
April, an increase of 31% against the same month a year ago. Oil imports are up 37% in the first four months
of 2010. Chinese automobile sales were also up 34% in April, against a year ago, and they are up 61% in the
first four months of 2010. While Opec seems to have taken last week’s volatility in stride, Kuwait’s oil minister
said on Monday that a drop beneath $65 a bbl would force the ministers to act.
There is still a great deal to sort out in this market before it will be clear where we are going, next.

Crude Oil Daily Technical Chart

**Note: Full report to be released tomorrow morning**

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