Market Review for Monday         

HE oil complex was lower yesterday as traders anticipated fresh economic trouble ahead.  Prices finished yesterday’s session nearer the day’s lows than highs after an initial burst of hope faded that government measures to shore up the banking system could work. Earlier yesterday, there had been reports that the government could end up owning as much as 40% of Citicorp.  That seemed to inject a note of optimism among traders.  As the day wore on, though, the early optimism simply melted away.  Prices dropped, largely in reaction to lower equities; the DJIA was down 250.89 points yesterday to an 11-year low.

So far, every initiative from two administrations has only flattered to deceive traders.  Nothing yet has been able to give them the continuous stream of hope that would have been capable of making a sustained positive impression on the critical markets at the heart of the US and world economies. 

Yesterday’s decline came despite the latest report from Petrologistics, a tanker tracking firm that prides itself on providing the first and earliest estimates of Opec production each month, typically before the month has even ended.  Their latest report suggests that Opec has achieved an 89% compliance rate with output targets (24.845 million bpd).  That is a dramatic achievement, if it is true, especially in light of previous estimates for a compliance level of roughly 70%. 

In other news yesterday, China’s crude oil imports in January were down almost 8.0% against a year ago,  to 12.824 million tons.  And, in yet other news, North Korea may or may not be about to test a new long-range missile under the guise of it being a communications satellite. 

Technicals

           The oil complex tried to move higher again yesterday, but was once again stopped in the attempt.  All three major contracts settled near the day’s lows, and they are in position to continue lower to test support in crude, break support in gasoline and keep going lower in heating oil, which is the weakest member of the complex here.  Because gasoline is right on top of near-term support, which it can easily break today, we would say it is the next weakest right now, even though its major support is farther away than crude oil’s support is.  The complex is on its back foot.

Dollars per barrel

Above:  The April-May contango started up again.  Below:  Crude oil continues to hold above a possible triple bottom.

Dollars per barrel

April crude oil now has buy-stops over $41.50, $42.68, $43.44-$43.60, $47.49, $48.59, $49.09, $50.47, $54.62, $56.00, $59.00, $60.00, $62.28, $65.56, $70.46, $71.80 & $76.25.  Sell-stops are under $37.85, $36.91, $34.13, $33.55, $32.40 & $30.00.  March heating oil has buy-stops over 123.20, 130.70, 134.20, 140.85, 142.32, 144.00, 148.65, 152.85, 154.00, 154.67, 155.10, 160.25, 164.80, & 166.90.  Sell stops are under 116.35, 113.59, 109.80, 104.55, 95.95, 94.50, 90.50 & 81.50.  March RBOB has buy-stops over 109.90, 110.57, 112.70, 122.40, 126.25, 133.75, 135.07, 144.21, 153.33, 158.00, 158.90, & 160.77.  Sell-stops are under 102.30, 98.70, 96.69, 90.10, 89.78, 85.45, 83.52, 79.50, 78.50, 77.60, 76.30, & 71.20.

Football: The bulls lost 16 yards on second and 15 to go, making it third and 31 to go.  Neither side can generate offense.

Technical Support & Resistance

Oil Inventory Reports

      This week’s DOE report should show a drawdown in distillate stocks, which has been the case in seven out of the last seven years.  The seven-year average has been a drawdown of 2.60 million barrels.  Gasoline stocks have declined in four of the past seven years, and crude oil stocks have increased in four out of the last seven years.  Utilization has increased in four of the last seven years, and crude oil imports have fallen in four out of the last five years. 

   Distillate stocks are now 16.4 million bbls, or 13.18%, higher than a year ago.  Heating oil inventories are 0.5 mln bbls, or 1.41%, higher than they were a year ago.  Gasoline stocks are 13.6 million bbls, or 5.85%, lower.  Crude oil stocks are now 52.1 million bbls, or 17.45%, higher than a year ago.  Residual stocks are 2.6 mln bbls (6.68%) lower than a year ago, jet fuel stocks are 0.1 mln bbls (0.24%) higher than a year ago.  Utilization is 1.2% lower than a year ago and is 5.21% below the seven-year average and 7.02% below the four-year, pre-hurricane average.

                                                                    DOE Weekly Inventory Statistics

Source: US Department of Energy’s Energy Information Administration

Open Interest Analysis

      Crude oil open interest fell by 24,943 contracts on Friday, when prices were lower.  That looks like heavy new selling and is bearish.  The March contract expired on Friday, and there was clearly liquidation going on, as well.

      Heating oil open interest fell by 32 contracts on Friday, when prices were lower.  That looks like long liquidation, which would be supportive.

      RBOB open interest grew by 509 contracts on Friday, when prices were lower.  That looks like new selling, which would be bearish.

      Natural gas open interest rose by 909 contracts on Friday, when prices were lower, which suggests new selling, which would be bearish. 

Friday’s Open Interest Changes:

Crude 1,173,322  dn 24,943        Heat 261,086   dn 32       RBOB 196,022  up 509       Nat gas 752,228   up 909

CFTC Commitments of Traders  (for the period ended Tuesday, Feb 17th)  

As of Feb 17th:               Long                   Short:

Crude oil                   243,728               198,712                           -contracts held by speculators:  1.23 to 1 long

                                           629,554               665,245                               held by the trade

                                             68,435                 77,760                               held by small specs and hedgers.

Spreads….dn 15,129 contracts   The ratio went from 1.07-to-one long to 1.23-to-one long in the last report.

   Large speculators added 4,165 long contracts and covered 24,273 shorts over the week under review.  Commercials added 6,122 longs and added 24,788 shorts.  Small specs and hedgers liquidated 2,493 longs and added 7,279 shorts.  Open interest fell by 7,335 contracts as prices dropped $2.62/barrel.  That looks like long liquidation, which would be supportive.  Only small specs and hedgers were liquidating longs; large specs covered a huge number of shorts and 15,000 spreads were taken off.

   The average large speculator has 2,739 long contracts (89 accounts), or 47 more contracts on average on the same number of long accounts, and 2,028 shorts (98 accounts), or an average of 158 contracts less on four fewer accounts.  Commercials held 7,869 longs (80) or 228 fewer longs on average on three more accounts, and 7,646 shorts (87), or 22 more shorts on three more accounts. Reportable positions held 4,685 longs (248) or the same number of contracts on one less account, and 4,573 shorts held by 252 accounts, or 22 fewer contracts on average on two fewer accounts.  The longs are marginally stronger, here. 

Heating oil                 30,859                 22,950                           - contracts held by speculators:  1.34 to 1 long

                                           160,263               173,427                              held by the trade.

                                             35,901                 30,646                               held by small specs and hedgers.

Spreads….up 21 contracts.    The ratio of large speculative longs to shorts went from 1.58-to-one to 1.34-to-one in a week.

       Large speculators added 2,594 longs and added 5,076 shorts.  Commercial accounts added 1,190 longs and covered 175 shorts.  Small speculators and hedgers added 1,608 longs and added 491 shorts.  Open interest rose by 5,413 contracts as prices dropped 11.50 cents. That looks like new selling, which would be bearish.  Large speculators were the best new sellers, here.

       The average large speculative long is holding 1,029 contracts (up 20 lots on 30 accounts, which is two more), while the average short has 820 contracts (plus 182 lots on 28 accts, unchanged).  The average commercial long is holding 2,504 contracts (down 62 on 64 accts, plus two) compared to the average short holding of 2,550 contracts (down 206 lots on 68 accts, up five).  The average reportable position is 1,874 long (down 16 lots on 119 accts, plus three) while the average short holding is 1,856 (down 120 lots on 123 accts, down 10).  The reportable short average fell by 120 contracts on 10 fewer accounts. 

Rbob Gasoline          52,300                   9,097                          -contracts held by speculators:  5.75 to 1 long

                                           111,307               157,486                             held by the trade.

                                              16,045                 13,069                              held by small specs and hedgers.

Spreads…dn 218 contracts   The ratio of large speculative longs to shorts went from 19.78-to-one to 5.75-to-one in 4 weeks.

     Large speculative holdings grew by 239 longs and grew by 4,500 shorts over the latest week. Commercial holdings grew by 3,800 longs and fell by 672 shorts.  Small speculators and hedgers’ positions grew by 97 longs and were up by 308 shorts.  Open interest grew by 3,918 contracts as prices dropped 13.21 cents.  That looks like net new selling, which would be negative.  Large speculators were the best sellers with the non-reportable category kicking in a few hundred contracts.  Commercials were buying and covering shorts.  Still, it was large speculative selling that drove prices lower.

   The average holdings are 1,067 contracts for each large speculative long (49) and 396 for each large speculative short (23).  The average commercial long now has 1,357 contracts long (82) and 1,831 short (86). Average reportable holdings are 1,186 long (148) against 1,342 short (133).  Large speculative accounts increased their average long holdings by 5 contracts and their average short holdings by 166 contracts, with the same number of long accounts and three new short accounts.  There were 8 more long and 10 more short reportable accounts, which added 40 to the average long and cut 79 from the average short. 

Naturalgas                69,878               210,402                           -contracts held by speculators:  3.01 to 1 short

                                           297,237               195,425                               held by the trade.

                                             79,188                 40,476                           held by small specs and hedgers.

Spreads…up 12,943 contracts    The ratio of large speculative shorts to longs went from 2.80-to-one to 3.01-to-one in 4 weeks.

  Large speculative holdings liquidated 190 longs and covered 2,348 shorts over the latest week. Commercial accounts added 11,278  longs and added 13,712 shorts, and small speculators and hedgers added 711 longs and added 435 shorts.  Open interest rose by 24,742 contracts as prices dropped $0.340/mmBtu.  That looks like heavy new selling, which would be bearish.  Commercials were the best buyers and sellers, with large speculators covering shorts as prices dropped.  They remain net short.

   The average large speculator has 1,625 contracts (43) while each large speculative short is holding 2,505 shorts (84).  The average commercial long now has 3,911 contracts long (76) and 3,152 short (62). Average reportable holdings are 3,569 long (183) long and 3,887 short (178).  Large speculative accounts had their average long holding rise by 165 contracts on five fewer accounts.  Reportable holdings were up by 187 longs and 178 shorts on three less long and two fewer short accounts.

Natural Gas & Utility Generation

March natural gas prices rallied yesterday, despite tumbling oil and stock market quotes.  The buying in gas seems to have come from unusually cold temperatures and wind chill factors in the greater New York metropolitan area, in specific, and the Northeast, in general.  Yesterday had a freezing bite in it that is normally reserved for December or January, and is not typically seen in February.  And, after last week’s technically ruinous trading, in which prices settled below $4.07 for two days consecutively, many traders were short coming into yesterday’s session.

The assumption has been that the weather would not be able to generate the searing cold that eats into storage levels as homeowners and utilities pull gas to burn for heat.  But, yesterday’s wind-chill readings in the Northeast gave us exactly that, a kind of clutching cold with icy fingers capable of clawing deep beneath one’s layered clothes.  That may be enough to gnaw away at existing large surpluses in storage levels.  It was a far cry from anything reminding one of an approaching change in season.  And, as has happened so often since November, the earlier forecasts of warmer readings have receded in favor of colder readings now that the forecast period is on our horizon.  Private forecasters are calling for readings in some places as many as 12 degrees below normal, with the NWS calling for below-normal readings next week, according to Dow Jones.

Cash natural gas prices were almost all higher yesterday.  There were no great jumps, but quotes were generally higher, which is unusual after Friday’s movement lower in futures.  And, after yesterday’s advances, one might expect to see additional gains today.

In cash trading yesterday, Henry Hub prices were at $4.20-$4.28, up $0.02-$0.09 (DJN).  SoCal prices were at $3.38-$3.49, up $0.10-$0.13 on the day.  El Paso Permian prices were up $0.03-$0.08 at $2.88-$2.98.  Katy prices were up $0.15-$0.20 at $3.65-$3.80.  Waha prices were up and down $0.02 at $2.92-$3.08.  Transco 6 was up $0.60-$0.80 to $6.00-$6.40/mmBtu. 

Palo Verde prices were last quoted at $28.50-$30.00/mwh.  Northeastern prices last traded at $39.10-$52.75.  Entergy was last at $33.50-$34.50.  Ercot was last at $39.10-$43.00/mwh. 

In what passes for extraordinary strength these days, natural gas prices traded above $4.00 all day long yesterday.  It was hardly a sign of blossoming technical strength, though.  Technically, the damage done last week was fairly conclusive.  Two consecutive closes under $4.07 really set the table for more weakness almost certain to come.  To make a long story short, it would require days, weeks or even months of sideways activity to turn this market around on the charts.  From the bearish perspective, though, it will only take a move beneath $3.92 to confirm the move lower. 

Unexpectedly cold weather gave us a decent short-covering rally yesterday, with some bargain-hunting thrown in for good measure.  But, we seriously doubt that there was any long-term speculative buying because that picture is pretty poor.

Support is at $3.92-$3.94, $3.82-$3.84, $3.67-$3.71, $3.40-$3.43, $3.33-$3.38, $3.10-$3.14, $2.88-$2.91, $2.83-$2.84, $2.74-$2.75, $2.64-$2.66 and $1.85-$1.88.  Resistance is at $4.15-$4.16, $4.25-$4.28, $4.51-$4.53, $4.63-$4.65, $4.85-$4.88, $5.01-$5.03, $5.22-$5.24, $5.55-$5.57, $5.62-$5.64, $5.99-$6.00, $6.15-$6.18, $6.23-$6.24, $6.34-$6.37 & $6.65-$6.69. 

Natural gas prices rallied slightly yesterday.

Dollars per million Btu

EIA Weekly Storage Figures

Last week’s EIA report showed a draw of 24 bcf on expectations for draws of 54 bcf.  Stocks are now 177 bcf higher than a year ago, compared to a surplus of 44 bcf a week ago, a surplus of 60 bcf two weeks ago and a surplus of 34 bcf three weeks ago.  Stocks are now 9.73% higher than a year ago.  They are 155 bcf and 8.42% above the five-year average.

The five-year average for this week was a draw of 145 bcf.  Last year, there was a draw of 151 bcf.  Over the last five years, draws have ranged between 107 bcf and 171 bcf.  In 2002, there was a draw of just 64 bcf, which was the lowest in years.

EIA Report

News & Views

In trading on Globex, April crude oil prices were down $0.02 to $38.42/barrel at 8:30 AM EST, this morning.  March heating oil prices were up 1.62 cents to 1.1916/gallon.  March RBOB prices were up 1.74 cents at $1.0607.  March natural gas was down $0.023 to $4.074/mmBtu. 

Traders were watching Asian equities falling overnight and this morning, and the US dollar strengthened, which added additional weakness to oil markets.  There was some short-covering, though, later in the morning, as traders turned their attention towards tomorrow’s DOE report.  After weeks of reliably showing declines in refined products demand and gains in crude oil stocks, the weekly statistics have recently become less reliable.

In other news, pirates boarded a Greek ship carrying coal through the Gulf of Aden, off the Somali coast.  The British naval vessel, Her Majesty’s Ship (HMS) Northumberland received a radio distress call from the captain of Saldhana telling it that pirates had intercepted the ship and were taking it to Somalia.  It had originally been on a course to Slovenia, Execution, LLC wrote.

Crude oil prices were higher in early trading yesterday, but they ended lower on the day, back near the day’s lows.  The battle over the support does not yet seem to be over.

Heating oil prices tried to get off the ground yesterday, but gravity re-exerted itself later in the session, pulling quotes right back down, again.

DOE Expectations

The table below lists the final survey results for Dow Jones Reuters and Bloomberg.  The DOE report will be released at 10:30 AM EDT on Wednesday morning this week.

Category    Dow Jones    Bloomberg     Reuters

Crude           up 0.300        up 1.000          up 1.000 mln bbls

Distillate      dn 1.400        dn 1.500          dn 1.700

Gasoline      dn 0.100        unchanged      up 0.400

Utilization   dn 0.1%         dn 0.1%           dn 0.2%

Distillate inventories have dropped in all of the last seven years, for an average drawdown of 2.600 mln bbls.  Gasoline stocks have declined in four of the last seven years, for a four-year average decline of 1.825 mln bbls and a seven-year draw of 0.529 mln bbls.  Crude stocks have increased in four of seven years, for a four-year build of 2.150 mln bbls, with a seven-year build of 0.729 mln bbls.  Crude oil imports have fallen in four of the last five years, for a four-year average decline of 400,000 bpd.  The five-year average import figure is 9.686 mln bpd.  Utilization has increased in four of seven years, for a four-year average increase of 0.825%.  The seven-year average utilization figure has declined by 0.286% to 87.23%.

By this afternoon, traders will turn their attention to tomorrow’s DOE report.

Figures had until recently reliably shown builds in crude stocks and declines in refined product demand.

An Illustrated Look at Energy Market Factors

A Look at Imports

Thirteen-week distillate imports have improved dramatically over the last four months, after reaching historical lows this past autumn.  Declines in Chinese demand have been the biggest help.

A Look at Inventories

Gasoline stocks have risen well since October, but lower processing has meant that stocks have not kept pace with the increases seen a year ago.

It is rare to see distillate stocks grow as much as they have since October.

Crude oil inventories have grown more since September than in previous years. 

Recommendations for Specific Market Segments