[PETROSPECTIVES] May 4, 2010

Early Evening Market Review for Tuesday

The oil markets were hammered on Tuesday as investors liquidated
equities and commodities aggressively. From a purely technical perspective,
looking only at crude oil, prices failed to break out above $87.09, getting
only as high as $87.15 before turning back down. That can be seen as a
technical failure.
Adding to yesterday’s heavy liquidation, though, was widespread selling in
equities. The DJIA was down more than 230 points at noon and, shortly
after that, crude touched the $3.00/bbl lower mark. Gold prices were down
$7/ounce and the euro was down 150 points. The focal point Tuesday
morning was the Greek bailout and its possible failure, which many thought could lead to chaos or panic.
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 [PETROSPECTIVES] May 4, 2010

As Greek demonstrators took to the streets to march against fiscal austerity, investors worried that German
leaders might decide to walk away from funding the bailout. This fear was big enough to overwhelm fresh
positive data from the US Commerce Department, which showed that US factory orders had risen in March.
Bloomberg suggested that this “signals the U.S. expansion gained speed at the end of the first quarter.”
Orders increased by 1.3%, which was the same seen in March, which was more than double the previous
estimate. And sales were reported up 2.2%, which was the largest gain since November, 2007.
Nevertheless, all eyes were on the Greek bailout, which smashed into a global equities market already
worried by a number of recent losses on the Shanghai Exchange, which had come in response to Chinese
central bank tightening on lending requirements. We had seen a huge influx of investment money in equities,
commodities and oil recently, in a rebirth of the “risk” or “carry” trade, and these investors were scampering
to get out of many markets Tuesday. We have had waves of buying and selling alternating over the last month.
We would love to be able to point to Tuesday’s steep declines as evidence that oil market fundamentals are
finally coming home to roost. We believe that the virulence of the selling certainly reflected an element of
that. But, the bulk of selling seems to have been connected to a fresh round of risk repudiation that seems to
have been tied directly to the Greek bailout – and its undercurrent of concern for Spain, Portugal and others.
Of course, one could have based the selling on market fundamentals, which only seem to be getting worse.
The most recent SpendingPulse report showed gasoline demand unchanged from a week ago at 9.213
million bpd, which was the lowest consumption figure since February 12th. This latest report showed demand
down 220,000 bpd, or 2.3%, from a year ago. The four-week demand average is down 101,000 bpd, or 1.1%,
against the same period a year ago. The only region showing any
increase in demand was the Midwest, which showed a rise of API Report
1.5%. The lower Atlantic was down 4.7%, the West Coast was Crude Oil up 2.951 million barrels
down 3.7% on the Gulf Coast. Year-to-date demand is up 1% on Distillate up 1.372
the year, so far. Gasoline up 1.459
Tuesday night’s API report was also bearish, with all three Pct Operated up 2.7% to 87.4%
major inventory categories showing increases and utilization
taking another huge jump – this week, gaining 2.7%. Gasoline demand came in at 8.945 million bpd, while
distillate demand came in at 4.071 million bpd. Crude imports grew by 361,000 bpd to 9.800 mln bpd.

Crude Oil Daily Technical Chart

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

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