NYMEX HEATING OIL    cents per gallon              MONTH HIGH LOW SETTLE CHANGE MAR 130.57 123.50 129.41 up 05.64 APR 130.32 122.76 129.40 up 05.98 MAY 130.55 123.82 130.10 up 06.28 JUN 132.18 125.73 131.80 up 06.28 JUL 134.55 128.45 134.50 up 06.18 AUG 137.70 134.60 137.45 up 06.13 SEP 140.73 138.19 140.55 up 06.13 OCT 143.80 140.60 143.45 up 06.18 NOV 146.04 143.40 145.90 up 06.23 DEC 148.68 144.97 148.55 up 06.18 JAN 151.07 148.55 151.15 up 06.08 FEB 152.76 149.85 152.75 up 05.98 Estimated Volume -,-- (total all prev day 82,365)

NYMEX CRUDE OIL    dollars per barrel MONTH HIGH LOW SETTLE CHANGE MAR 45.30 42.27 45.22 up 02.72 APR 47.54 44.59 47.47 up 02.81 MAY 48.80 45.74 48.74 up 02.85 JUN 49.74 46.80 49.69 up 02.79 JUL 50.55 47.56 50.50 up 02.73 AUG 51.29 48.50 51.25 up 02.71 Estimated Volume… --,---   (641,172)   Opec Basket…$40.50  up $1.55 Prompt #2 Oil NYH 88 ..-0.00 to +0.25, 74 Lo S…+0.75 to +1.00 US Gulf 88 …-5.25 to -4.75, 74 Lo S…-2.50 to -2.25 Group .........-7.00 to -6.00  Lo S.....-7.00 to -6.00 Chicago ......-5.00 to -4.00                                                       cash quotes by Dow Jones

NYMEX RBOB GASOLINE       cents per gallon MONTH HIGH LOW SETTLE CHANGE  MAR 130.70 116.50 130.04 up 13.37 APR 139.43 126.26 138.95 up 12.38 MAY 139.41 128.16 138.95 up 11.18 JUN 138.27 128.12 138.25 up 10.23 JUL 137.66 129.25 137.45 up 09.63 AUG 136.75 130.69 136.70 up 09.13 SEP 136.14 128.10 136.10 up 08.88 OCT 126.53 119.00 126.55 up 08.33 Estimated RB Volume            -,---   (98,989)

NYMEX NATURAL GAS   dollars per mmBtu MONTH HIGH LOW SETTLE CHANGE MAR 4.128 4.018 4.077 up 0.048 APR 4.213 4.105 4.167 up 0.049 MAY 4.343 4.245 4.305 up 0.053 JUN 4.485 4.388 4.447 up 0.051 Estimated Volume…--,---    (147,099) Nymex statistics are based on composite Access & Day Sessions Prompt Gasoline NYH M5 +0.00 /+0.50  RBOB  +15.75 /+16.25 US Gulf M4 :  -9.00 to -8.25  RBOB +1.00 to +1.75 L.A. Conv Reg 157.00-158.00, N-grade Group  129.55-130.05 Chi  134.45-135.20

Market Review for Thursday               

HE oil complex advanced for its third straight session yesterday, and stronger gasoline prices were at the heart of the advance.  Gasoline prices gained about twice as much as one would have expected, simply by extrapolating the move higher in crude oil futures.

The day started ominously as initial jobless claims jumped to a rate of 667,000.  Another 5.2 million Americans, a record number, are still filing for continuing benefits.  Those numbers could, maybe even should, have kicked any combination of markets in the teeth.  And, that’s not to say that they will not, at some point today or next week.  It is a selective market right now.

Nevertheless, markets did not get kicked after the jobless claims figure, and there was fresh talk in Washington of stimulus and rescue.  President Obama had some market observers stirred up like hornets over his proposal to raise taxes on those making more than $200,000 individually or $250,000 filing jointly, but the markets collectively responded reasonably well – although we would be reluctant to draw straight lines between one event and another, in that regard.  The DJIA was down, but by less than 100 points, and that is normal ‘wiggle and jiggle’ in this market, these days.

Gasoline prices were still responding to Wednesday’s confluence of factors, which are normal enough at the very end of February.  Inventories dropped, as reduced refinery utilization rates (because of seasonal maintenance) and surprisingly robust demand figures worked together to produce an unexpected drawdown.  That, in turn, helped to increase a growing year-to-year deficit in gasoline stocks, and it reminded traders of the seasonal trading tendency - starting next week - with the full force of an ice-cold Gatorade shower.  At the start of the week, we were wondering if anything could take the focus from a weak economy.  Apparently, the strong combination seen on Wednesday could, and did.  Next, we need to see if it has legs.

Technicals

           Gasoline prices led the oil complex higher again yesterday, making it three days higher in a row.  All three days have seen prices close nearer the top than mid-range.  March gasoline, which expires this afternoon, would need to break (and settle) over 133.73 for a breakout to the upside.  Prices had tried to break higher for a month, but seem to have needed to clear out speculative longs before being able to accomplish it.  Of course, prices actually have to break higher, and recent advances have been powered by a heavy proportion of short-covering, which is unsustainable.  We’ll see.

Ratio: Crude to gas

Above:  Crude is at its highest ratio to gas since 10-15  Below:  Gasoline is back above heating oil after

Cents per gallon

April crude oil now has buy-stops over $45.30, $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 $42.27, $39.40, $37.65, $36.91, $34.13, $33.55, $32.40 & $30.00.  March heating oil has buy-stops over 130.57-130.70, 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 123.50, 118.00, 116.24, 113.59, 109.80, 104.55, 95.95, 94.50, 90.50 & 81.50.  March RBOB has buy-stops over 130.70, 133.75, 135.07, 144.21, 153.33, 158.00, 158.90, & 160.77.  Sell-stops are under 116.50, 107.90, 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 gained 27 yards on first down, yesterday, giving them another set of downs.  The bulls took over quickly.

 

Technical Support & Resistance

Oil Inventory Reports

      This week’s DOE report showed an unexpectedly large drawdown in gasoline stocks, which are now 7.56% lower than a year ago.  The biggest change in the gasoline market has been the increase in demand, with four-week demand now 1.72% higher than a year ago, at 8.985 million bpd.  Distillate stocks were higher, which makes it the first build in eight years, and it leaves distillate inventories 16.73% above where they were a year ago.  That is poor, given cold temperatures this season.

   Distillate stocks are now 20.3 million bbls, or 16.73%, higher than a year ago.  Heating oil inventories are 1.8 mln bbls, or 5.32%, higher than they were a year ago.  Gasoline stocks are 17.6 million bbls, or 7.56%, lower.  Crude oil stocks are now 51.5 million bbls, or 17.18%, higher than a year ago.  Residual stocks are 2.5 mln bbls (6.43%) lower than a year ago, jet fuel stocks are even with a year ago.  Utilization is 3.3% lower than a year ago and is 5.83% below the seven-year average and 7.28% 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 grew by 11,093 contracts on Wednesday, when prices were higher.  That looks like good, new buying, and is supportive.

      Heating oil open interest rose by 756 contracts on Wednesday, when prices were higher.  That looks like new buying, which would be supportive.

      RBOB open interest rose by 974 contracts on Wednesday, when prices were higher.  That looks like new buying, which would be constructive.

      Natural gas open interest fell by another 14,426 contracts on Wednesday, when prices were lower, which suggests heavy long liquidation, this time.  More than 74,000 contracts were taken off going into this expiration. We’ll get some answers today. 

 

Wednesday’s Open Interest Changes:

Crude 1,190,264  up 11,093        Heat 259,879   up 756     RBOB 189,060  up 974       Nat gas 674,275   dn 14,426        

 

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 lightly yesterday, in a trading session that had little urgency or motivation.  The March contract expired earlier this week, with options on March futures going off the board, a day earlier, on Tuesday.   Yesterday’s EIA report showed a draw of 101 bcf, just below the average estimates by Dow Jones and Bloomberg for draws of 105 bcf.  After so many consecutive disappointments this winter, it seems that market observers were reasonably happy with a report that came in near expectations.

Traders also seem to have buying in sympathy with stronger oil prices, not just yesterday but over the last three days.  The crude oil-to-natural gas ratio shot up this week to its highest level since the middle of October as crude advanced and natural gas languished.  Still, there is a limit to how far one can move at the expense of the other. 

Traders also were looking ahead to colder temperatures returning to the Midwest and Northeast by early next week.  Readings have been on the more moderate side recently and are expected to lift into the 50’s in the New York City metropolitan area and across the Hudson & Connecticut River Valleys today.  Moderate temperatures are expected to be felt throughout the greater Ohio River Valley system today.  But the cold will be back at the start of next week.

Cash natural gas prices were mixed to lower again yesterday.  Cash traders were reacting to much warmer temperature readings here today and yesterday.  The end-of-month dynamics of book-outs and position-squaring also seems to have an impact on the trading here.   

In cash trading yesterday, Henry Hub prices were at $4.00-$4.13, down $0.13-$0.16 (DJN).  SoCal prices were at $2.89-$3.14, down $0.26-$0.39 on the day.  El Paso Permian prices were down $0.14-$0.17 at $2.66-$2.75.  Katy prices were down $0.10-$0.17 at $3.51-$3.67.  Waha prices were down $0.05-$0.13 at $2.82-$2.94.  Transco 6 was down $0.11-$0.20 at $4.62-$4.70/mmBtu. 

Palo Verde prices were last quoted at $26.50-$27.75/mwh.  Northeastern prices last traded at $35.35-$44.25.  Entergy was last at $30.00-$30.50.  Ercot was last at $31.75-$32.25/mwh. 

This week’s EIA underground storage report showed a draw of 101 bcf on estimates for a draw of 105 bcf.  That seemed neutral.  But, in terms of the absolute numbers, underground storage facilities are more completely filled now than they were a week ago.  Last year, on the same date, there was a drawdown of 157 bcf, and that means that this year’s draw of 101 bcf left storage at much higher levels.  The same is true in comparison to the five-year average withdrawal figure of 145 bcf. 

Even though this week’s report failed to give us the same measure of disappointment that many recent reports have, in terms of falling short of expectations, we still have a great deal more gas in storage than we did a year ago. 

Support is at $3.99-$4.01, $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, and $5.99-$6.00. 

Natural gas prices sold off yesterday.

 

Dollars per million Btu

 

EIA Weekly Storage Figures

This week’s EIA report showed a draw of 101 bcf on expectations for draws of 105 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.  Expectations were for an average draw of 105 bcf.  We will publish the numbers in our next report; we could not get them, yet.

 

EIA Report

News & Views

In trading on Globex, April crude oil prices were down $1.74 to $43.48/barrel at 8:30 AM EST, this morning.  March heating oil prices were down 2.70 cents to 1.2671/gallon.  March RBOB prices were down 4.34 cents at $1.2570.  April natural gas was down $0.073 to $4.004/mmBtu. 

 

Traders were taking profits on long positions in oil last night and early this morning.  From their perspective, traders felt it was better to square their positions going into today’s refined products contracts’ expiration of the March contract.  Some traders felt that many of the market’s recent gains had come on the back of heavy short-covering, and they saw signs that it might be ending.   

 

This was especially true in the case of gasoline, where prices movements were almost vertically higher over the last two days, which is indicative of urgent buying.  It is rare that anyone is urgent in establishing a new position.  It is much more typical to see urgent buying by shorts covering their exposures. 

 

Crude oil prices continued to advance strongly yesterday, and they now have three strong up-days in a row.  Prices have left support behind and are now established above $40.00 – for now.

Heating oil prices were higher yesterday, but they are coming into a solid sheet of resistance that extends up more than 35 cents.  Still, it could look like a double bottom longer-term.

 

Despite this morning’s selloff, which in many respects should have been expected, we still feel that this week’s movement higher was a sign of what is coming.  And, once again, the bigger moves seem to be on tap in gasoline futures.  The US and China are both looking at incipient tightness in gasoline, and it will take time for refineries to address the need.

 

US refineries will be going through maintenance for another full two months.  China’s Sinopec has directed its 30 refineries to start increasing the percentage, or yield, of gasoline coming from refining operations, but none of that is going to be exported; it is all for domestic use.  Until the directive pays dividends, China will be looking to capture some of the same cargoes that might normally head to the US.  And US refineries are on a hard timetable.  Units going though maintenance will come out of service on set dates.  There is only a small group of refining units that can be pressed into service to take advantage of higher refining margins.  Those units are likely to come into play as refinery margins improve.   

 

 

 

A larger-than-expected stock draw, a growing deficit against a year ago, seasonal maintenance at refineries, and surprisingly strong demand are all working in favor of stronger gasoline quotes as we start the seasonal next week.

 

An Illustrated Look at Energy Market Factors

A Look at Spreads

 

Gasoline prices are higher than heating oil prices for the first time since the end of August, 2007.

Last year was the only year that gasoline prices remained beneath heating oil prices through summer.

 

The heating oil contango has been dropping recently.  It is below the actual cost of carry.

 

 

 

 

Recommendations for Specific Market Segments

Heating Oil Distributors      Heating oil prices have sold off this morning, but the seasonal tendency starts next week.  We feel that the strength seen this week is likely to have been indicative of the strength that will appear between March and May.      It will not be easy to buy over the next two weeks.  We would be surprised to see prices just move straight up.  Still, we have no reason to believe that the seasonal tendency will suddenly stop working this year.        Fundamentally, heating oil has problems.  Stocks are substantially above year-ago levels, and the coldest weather is behind us.  That may make it difficult moving forward from here.      We want to wait until next week, in any event.  We want to be ready to buy next week, though.      Diesel Users With the seasonal one week away, we want to wait for it to begin.   NYH Ultra Low Sulfur Diesel.…133.40-133.90 plus 4.250 USG Ultra Low Sulfur Diesel.…127.15-127.40 minus 2.125   Jet/Kerosene Users & Airlines New York Harbor cash market differentials were 4.50 to 5.00 cents over January heating oil in NY Harbor and 0.75 to 0.25 cents under the screen in the US Gulf.    Diesel & Gasoline Marketers We still need to hedge purchased material against the downside.      Gasoline Blenders & End-Users Gasoline prices had a strong day yesterday, and they look like they can move higher from here.  We will wait until next week, though. Prompt NYH Fuel Ethanol…..165.00-168.00 Prompt USG Fuel Ethanol….158.00-162.00 Quotes from 2-20-09 Heating Oil End-Users We want to keep our powder dry until next week.      Speculators We would wait for the seasonal to begin in proper.      Refiners The 7:5+2 crack spread was at $9.32 yesterday.      Crude Oil Producers The bulls had an inspiring day yesterday.  The support looks capable of holding here.

Prompt Jet Fuel Prices New York Harbor   133.90-134.40 US Gulf  128.65-129.15 Midwest (Group Three) 123.40-124.40 Midwest (Chicago)  123.40-127.40 Los Angeles  132.00-133.00 San Francisco  132.00-133.00 Portland, Oregon  132.00-133.00 Cents per gallon   Propane Prices Mont Belvieu……….…..non-TET………$0.631040   Cents per gallon   Gasoline prices burst higher again yesterday, closing just a jump away from breaking out over 133.73.  It looked awfully distant on Monday, when prices were flirting with breaking beneath a dollar.  If we break 133.73, we will have objectives to 148.75 and 157.54.      Early March is traditionally the best time of year to buy (June) gasoline futures or call options.