Market Review for Monday               

 SUDDEN reappraisal of the US and world economies combined with expiration pressures on the soon-to-end May crude oil contract (goes off the board this afternoon) to pressure oil, commodities and equities prices substantially lower, yesterdays.  The fact that the decline was so broad-based tells us that the May expiration, while important to oil traders, was not the major focus of yesterday’s trading.

It turned out to be the largest single-day loss in oil futures since the first week of this not-so-new year.  Dow Jones suggested that traders were revisiting relatively robust first quarter earnings by major banks, and that their re-examination dredged up fresh fears for the future of the financial sector.  Others might simply describe it as heavy profit-taking after a month and a half of firmer equities and commodities quotes. 

We were surprised to see this yesterday; we thought that prices stood up remarkably well through the course of trading last week, when there was very little fundamental or economic news.  The fundamental news we did get came from the API and DOE, and their reports last week were mostly bearish.  We thought that the bears had a remarkable opportunity to sell prices lower last week and thought they missed the chance.  Yesterday’s selling seemingly materialized out of nowhere, and did not seem directly connected to any specific event, other than weakness in equities and a stronger US dollar.

This market may have made it as far as it can right now on seasonal tendencies for stronger prices, a vague sense that the worst is over with the recession and an early rally in equities.  Yesterday’s weakness tells us that equities and dollar values still matter in this market.  If they are turning bearish, the weekly reports are unlikely to help us.

Technicals

           Oil prices were steeply lower yesterday, with crude oil prices falling farther than refined products prices.  Crude broke support at $47.26-$47.37 and settled below those levels.  Heating oil still has support at 129.98, while gasoline still has support at 134.11.  Gasoline prices did break beneath intermediate support at 140.37, but they could not finish beneath that figure.  Crack spread improved yesterday, so that could ultimately help crude prices by making it more profitable to process crude into refined products.

Dollars per barrel

Above:  Crude is weaker against products.  Below:  Heating oil prices have gained against crude.

Dollars per barrel

May crude oil now has buy-stops over $50.31, $52.45, $53.90, $54.66, $56.00, $59.00, $60.00, $62.28, $65.56, $70.46, & $71.80.  Sell-stops are under $45.44, $43.62, $42.50, $42.00, $41.00, $39.40, $37.65, $36.91, and $32.40.  May heating oil has buy-stops over 143.38, 145.35, 147.15, 147.80, 150.50, 152.85, 154.00, 154.67, 155.10, 160.25 & 164.80.  Sell stops are under 132.25, 129.95, 127.95, 123.20, 119.00, 114.30, 112.50, 109.80, 104.55, and 95.95.  May RBOB has buy-stops over 149.27, 152.76, 153.35, 153.75, 158.00, 158.90, & 160.77.  Sell-stops are under  139.65, 136.70, 134.10, 133.55, 130.60, 124.00, 121.50, 118.25, 116.50, 107.90, 102.30, 98.70, 96.69, and 90.10.

Football: The bulls lost 44 yards yesterday, making it second and 54 to go.  It could have even been a fumble.

Technical Support & Resistance

Oil Inventory Reports

    This week’s DOE report has shown an average increase of 1.2% in refinery utilization, over all eight years, for this week.  During the five years that it increased, it increased by an average of 2.68%.  Gasoline stocks have still fallen in six of the last eight years, and crude stocks have increased in five of the last eight years, but distillate stocks have been much more neutral.  Three years have been higher, three years have been lower, and two years were unchanged.  The eight-year average was a drawdown of 37,500 bpd.  Crude imports have averaged 9.867 million bpd over the last five years.

   Distillate stocks are now 32.8 million bbls, or 30.71%, higher than a year ago.  Heating oil inventories are 13.6 mln bbls, or 59.91%, higher than they were a year ago.  Gasoline stocks are 1.3 million bbls, or 0.60%, lower.  Crude oil stocks are now 51.9 million bbls, or 16.49%, higher than a year ago.  Residual stocks are 3.2 mln bbls (8.12%) lower than a year ago, jet fuel stocks are up 0.7 mln bbls, (1.81%) higher than a year ago.  Utilization is 1.0% lower than a year ago and is 9.99% below the eight-year average.  It is 12.62% lower than the five-year, pre-Katrina average.  That is the most bullish factor in this complex.

                                                                    DOE Weekly Inventory Statistics

Source: US Department of Energy’s Energy Information Administration

Open Interest Analysis

      Crude oil open interest fell by 28,597 contracts on Friday, when prices were higher, which looks like heavy short-covering, which would be negative.

      Heating oil open interest rose by 1,839 contracts on Friday, when prices were higher.  That looks like new buying, which would be bullish.

      RBOB open interest grew by 4,620 contracts on Friday, when prices were higher.  That looks like new buying, which would be supportive.

      Natural gas open interest fell by 9,113 contracts on Friday, when prices were higher.  That looks like short-covering, which would limit the potential buying. 

Friday’s Open Interest Changes:

Crude 1,157,151  dn 28,597        Heat 263,617   up 1,839       RBOB 213,990  up 4,620       Nat gas 660,563  dn 9,113   

CFTC Commitments of Traders  (for the period ended Tuesday, Apr 14th)  

As of Apr 14th:                Long                   Short:

Crude oil                      180,982                 176,020                           -contracts held by speculators:  1.03 long

                                             671,472                 685,580                               held by the trade

                                               75,905                   66,759                               held by small specs and hedgers.

Spreads….up 4,817 contracts   The ratio went from 1.07-to-one short to 1.03-to-one long in the last report.

   Large speculators liquidated 5,946 long contracts and added 1,585 shorts over the week under review.  Commercials added 21,048 longs and added 15,912 shorts.  Small specs and hedgers added 10,388 longs and added 7,993 shorts.  Open interest grew by 30,307 contracts as prices were up $0.26/barrel.  That suggests net new buying, which would be supportive, although prices did not rise by very much.  Commercials and small specs and hedgers were the biggest buyers during the week. 

   The average large speculator has 2,057 long contracts (88 accounts), or 21 less contracts on average on one more account, and 1,834 shorts (96 accounts), or an average of 72 contracts more on three less accounts.  Commercials held 7,808 longs (86) or 222 fewer longs on average on three fewer accounts, and 7,618 shorts (90), or 169 less shorts on four more accounts. Reportable positions held 4,295 longs (260 accounts) or 23 less contracts on six more accounts, and 4,468 shorts held by 252 accounts, or 36 more contracts on average on three more accounts.  The new sellers sold large numbers of contracts.

Heating oil                   35,130                   11,839                           - contracts held by speculators:  2.97 to 1 long

                                             142,887                 182,746                              held by the trade.

                                               41,709                   25,141                               held by small specs and hedgers.

Spreads….up 3,099 contracts.    The ratio of large speculative longs to shorts went from 2.87-to-one to 2.97-to-one in a week.

       Large speculators added 1,981 longs and added 283 shorts.  Commercial accounts added 3,919 longs and added 6,925 shorts.  Small speculators and hedgers added 976 longs and covered 332 shorts.  Open interest grew by 9,975 contracts as prices gained 1.20 cents. That looks like net, new buying, which would be supportive. 

       The average large speculative long is holding 1,211 contracts (dn 64 lots on 29 accounts, 3 more accounts), while the average short has 564 contracts (dn 78 lots on 21 accts, up three accounts).  The average commercial long is holding 2,198 contracts (up 27 contracts on 65 accts, up 1) compared to the average short holding of 3,097 contracts (up 12 lots on 59 accts, up two).  The average reportable position is 1,839 long (dn 2 lots on 117 accts, up 5) while the average short holding is 2,166 (dn 71 lots on 107 accts, up 8).  The reportable short category added eight accounts in the latest week).

Rbob Gasoline          54,805 5,754                                  -contracts held by speculators:  9.52 to 1 long

                                             118,265                 172.109                             held by the trade.

                                              18,373 13,580                                    held by small specs and hedgers.

Spreads…up 2,613 contracts   The ratio of large speculative longs to shorts went from 9.75-to-one to 9.52-to-one in a week.

     Large speculative holdings fell by 2,679 longs and grew by 5,754 shorts over the latest week. Commercial holdings grew by 7,266 longs and rose by 3,362 shorts.  Small speculators and hedgers’ positions fell by 811 longs and rose by 551 shorts.  Open interest grew by 6,389 contracts as prices dropped 0.28 cents.  That looks like new selling and is negative.  Commercials were the largest sellers – and bought twice as much as they sold.  Speculators liquidated long holdings.

   The average holdings are 913 contracts for each large speculative long (60) and 320 for each large speculative short (18).  The average commercial long now has 1,577 contracts long (75) and 1,978 short (87). Average reportable holdings are 1,231 long (152) against 1,412 short (136).  Large speculators had one more long account and the same number of short accounts, which decreased the average long position by 61 contracts and cut the average short by 7 shorts.  There were 11 new long and seven more short accounts in the reportable category, which cut 45 contracts from the longs and 31 from the shorts.

Naturalgas                 75,773                 202,382                           -contracts held by speculators:  2.67 to 1 short

                                             264,604                 183,550                               held by the trade.

                                               83,171                   37,616                           held by small specs and hedgers.

Spreads…up 24,145 contracts    The ratio of large speculative shorts to longs went from 2.74-to-one to 2.67-to-one in a week.

  Large speculative holdings added 166 longs and added 570 shorts over the latest week. Commercial accounts added 8,198 new longs, and added 8,797 shorts, while small speculators and hedgers liquidated 1,203 longs and covered 2,206 shorts.  Open interest grew by 31,306 contracts as prices rallied $0.127/mmBtu.  That looks like new buying, which would be supportive.  Commercials were the best buyers, but they were selling more than they bought. 

  The average large speculator has 1,329 contracts (57) while each large speculative short is holding 2,734 shorts (74).  The average commercial long now has 3,150 contracts long (84) and 2,781 short (66). Average reportable holdings are 2,844 long (204) long and 3,458 short (181).  Large speculators added eight long accounts, which decreased the average long holding by 219 contracts, and they kept the same number of short accounts.  There were 21 more reportable long and 13 more short accounts, which decreased average holdings by 149 longs and 68 shorts.

Natural Gas & Utility Generation

May natural gas prices reversed recent gains and dropped significantly yesterday.  Yesterday’s low of $3.52 represents the fourth test of $3.50/mmBtu in the last six trading days, although yesterday’s close was not able to put any room between yesterday’s finishing prices and the crucial $3.50 level of support.  As a result, the odds would seem to favor a break-down below that critical price level.  It may turn out just to be to touch off sell-stops, in which case we could see prices rally quickly after breaking that level (if they do).  The problem is that there is so very little out there that can be considered bullish enough to sustain rallies.

Although this market’s most recent past (last week) has been primarily a story of three failed attempts to break below $3.50, yesterday’s decline was a matter of prices being influenced more by events in equities and oil and commodities markets.  Natural gas prices have been able to ignore developments in other markets on a very selective basis, but yesterday’s moves were too pronounced for gas traders to ignore.  Since the weakness in a number of markets was attributed to a reassessment of the US and global economic outlook, gas traders were seemingly compelled to revisit their own market, on the possibility that industrial demand may be weak for an extended period of time.  That has been a recurring theme in natural gas trading this year.

In cash trading on Friday, Henry Hub prices were at $3.44-$3.60, down $0.01-$0.08 (DJN).  SoCal prices were at $2.72-$2.90, down $0.18-$0.28 on the day.  El Paso Permian prices were down $0.16-$0.19 at $2.67-$2.80.  Katy prices were down $0.02-$0.07 at $3.33-$3.46.  Waha prices were down $0.17-$0.19 at $2.74-$2.86.  Transco 6 was down $0.04-$0.17 at $3.80-$4.04/mmBtu.  There were no fresh quotes yesterday.

Palo Verde prices were last quoted at $23.00-$26.50/mwh.  Northeastern prices last traded at $27.00-$37.50.  Entergy was last at $30.50-$31.50.  Ercot was last at $27.75-$29.00/mwh. 

With so little fundamental reason for prices to build on any failures to break $3.50, prices have just not been able to put any air between themselves and that critical support level.  That is especially true this morning, and it will not take much selling to push quotes beneath that level, even it happens as the result of a stop-hunting expedition.  The real question, looking ahead, is whether prices will be able to build on any potential break below $3.50.  It seems clear that they should, with hardly any concerted effort, be able to break that level, at least briefly. 

It was very cold in the Northeast yesterday, following a very springlike weekend.  Forecasts suggest that temperatures will return to warmer readings by this weekend, across large parts of the nation, including the northern tier of states, but right now, it is still winter outside.  After turning off the thermostat over the weekend, we had to flip it back on yesterday.  Even so, this very late heating demand is unlikely to eat significantly into underground storage levels.  In fact, we expect builds from now on.

Support is at $3.50-$3.53, $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 $3.78-$3.82, $3.85-$3.86, $3.96-$4.00, $4.21-$4.23, $4.34-$4.38, $4.42-$4.43, $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 steeply yesterday.

Dollars per million Btu

EIA Weekly Storage Figures

Last week’s EIA report showed a build of 21 bcf on expectations for a build of 20 bcf.  Stocks are now 438 bcf higher than a year ago, against a surplus of 438 bcf a week ago, a surplus of 402 bcf two weeks ago and a surplus of 372 bcf three weeks ago.  Stocks are now 34.84% higher than a year ago.  They are 311 bcf and 22.47% above the five-year average.

For this week, our five-year average was a build of 40.0 bcf.  Our eight-year average was a build of 46.62 bcf.  We just changed the figures in this report.

EIA Report

News & Views

In trading on Globex, May crude oil prices were down $0.06 at $45.82/barrel at 2:30 AM EDT, this morning.  May heating oil prices were up 0.34 cents to 1.3350/gallon.  May RBOB prices were up 0.48 cents to $1.4167.  May natural gas was up $0.018 to $3.558/mmBtu. 

Oil prices were higher in trading last night, but by early morning, crude oil prices had already started moving lower.  The US dollar was holding steady early this morning, and Asian equities were under selling pressure, but prices were holding near unchanged as traders waited for more definitive signals from European stock exchanges.  Technically, yesterday’s activity hurt crude oil futures.

Traders were seemingly reluctant to get too far ahead of price movement, this morning.  May crude oil futures contracts expire this afternoon, and then we start the midweek cycle of reports, starting with the API report this evening and the DOE statistics, which will be out tomorrow morning.  Even though products stocks are seen moving lower, demand remains low and stocks are high.

Crude oil prices dropped below the major support at  $47.26 and $47.37.  We expected a “dynamite” breakout, although we thought it was more likely on the upside.  This is bearish.

Heating oil prices broke below two support levels, at 136.00 and at 134.49.  There is still major support at 129.98.  At this stage, with crude having broken lower, we should expect a test.

DOE Expectations

The table below lists the first 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 2.500         up 2.400           -- -.--- mln bbls

Distillate      dn 0.900         dn 0.900           -- -.---

Gasoline       dn 0.900         dn 0.800           -- -.---

Utilization    up 0.6%          up 0.6%            -- -.---

Over the last eight years, distillate stocks have had an average draw of 0.037 mln bbls.  Gasoline stocks had a six-year average draw of 1.766 mln bbls, with an eight-year average draw of 0.987 mln bbls.  Crude oil stocks had a five-year average gain of 3.04 mln bbls.  The eight-year average is a build of 1.475 mln bbls.  Utilization has increased in five years, for an average increase of 2.68%.  The eight-year average is an increase of 1.20%, to an average rate of 91.35%.  The five-year, pre-hurricane average is 93.84%.  Crude oil imports have been up an average of 223,000 bpd over the last five years, and the five-year average import rate is 9.867 million bpd.

With “investors” pulling money from other asset classes to put into safe havens like the US dollar and gold, equities and commodities lost an important source of buying.  That has allowed fundamentals to move to the foreground in oil.

An Illustrated Look at Energy Market Factors

A Look at other News

Dollar-Euro:  One-Year Chart

           Dollar-Euro:  Six-Month Chart

The US dollar has been strengthening over the last week, and that has helped make oil prices weaker.

Source:  http://www.advfn.com/p.php?pid=forexqkchart&curcode1=USD&curcode2=EUR

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