Market Review for Tuesday             

QUITIES, commodities, the euro, and the oil complex all staged rallies yesterday, in a strange session that was most memorable for its lack of follow-through on the downside, following Monday’s severe weakness.  Traders interviewed by Dow Jones said that yesterday’s expiration of the May crude oil contract helped to amplify the strength in equities and helped to push oil futures higher. 

This has been one of the big problems in the energy complex, as a whole, and it has been most noticeable in natural gas trading.  The markets often seem to forget everything they were thinking the day before.  That has been less of a problem in the oil complex, but it has still been apparent from time to time, and it was evident yesterday.  We were talking about – and trading against – an entirely new set of factors yesterday than we were on Monday.

Despite yesterday’s minor gains, the losses this week have been comparatively large.  And, unless we see a counterbalancing increase in prices before the week ends, this week is likely to leave oil prices significantly weaker than they were at the end of last week.  Technically, refined products still have major support intact.  But, crude oil prices broke beneath major support on Monday.

Last night’s API report stood that relationship on its head, with unexpected builds in refined products stocks and a drawdown in crude oil inventories.  As noted on page 6, that is the opposite of surveyed expectations.  The important thing about the report is that it had both bullish and bearish features, which should allow this market to pick and choose what it wants to do.  If the DOE report follows suit, it will be a diagnostic report, because it will let the market tell us what it wants to do.

Technicals

           Oil prices dropped to new recent lows yesterday, printing their lowest levels in crude oil since March 16^th, and effectively taking away all the gains since the March seasonal started to work this year.  Refined products had slightly better performances, but just barely.  Heating oil prices broke the major support at 129.98 briefly before rallying, and if yesterday’s lows hold, they will look like tests of that low.  They hit the sell-stops and rallied.  Gasoline prices got within 220 points of the low at 134.11 before they rallied.  All three finished the day on a relatively strong note, comparatively.

Ratio: Crude divided by natural gas

Above:  Crude is at a high against gas.  Below:  Crude is approaching resistance in this ratio.

Ratio: Crude divided by natural gas

June crude oil now has buy-stops over $49.30, $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 $46.70, $43.62, $42.50, $42.00, $41.00, $39.40, $37.65, $36.91, and $32.40.  May heating oil has buy-stops over 136.50, 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 129.79, 127.95, 123.20, 119.00, 114.30, 112.50, 109.80, 104.55, and 95.95.  May RBOB has buy-stops over 143.50, 149.27, 152.76, 153.35, 153.75, 158.00, 158.90, & 160.77.  Sell-stops are under  136.30, 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 gained 6 yards yesterday, making it third and 48 to go.  The bulls have just managed to hold onto the ball.

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 grew by 10,529 contracts on Monday, when prices were lower, which looks like fresh selling, which is unusual (for the open interest to grow) going into expiration.  It is doubly bearish, considering that factor.

      Heating oil open interest rose by 1,634 contracts on Monday, when prices were lower.  That looks like new selling, which would be bearish.

      RBOB open interest fell by 4,107 contracts on Monday, when prices were lower.  That looks like new selling, which would be bearish.

      Natural gas open interest fell by 368 contracts on Monday, when prices were lower.  That looks like net long liquidation and is supportive, to a very minor degree.  There was clearly an element of new selling here, as well.

Monday’s Open Interest Changes:

Crude 1,167,680  up 10,529        Heat 265,251   up 1,634       RBOB 209,883  dn 4,107       Nat gas 660,195  dn 368      

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 broke down below their recently-established, new six-and-a-half year low above $3.50 yesterday, although they could not settle beneath that level.  May natural gas prices fell to a low of $3.448 before bargain-hunting and short-covering/profit-taking by previous sellers pushed quotes back above $3.50/mmBtu.  This leaves us still wondering about the answer to our question earlier this week about the significance of the support at $3.50 and what the importance of any quick breakdown below it might be.  In this case, prices did exactly what we were afraid they might do – they broke down, triggered sell-stops, but then rallied back to settle above previous support.  This gives the bulls just enough hope to keep on buying in this market, while t simultaneously emboldens the bears; it was hardly satisfying for either position.

There were no new reasons for yesterday’s weakness.  It was the cast of what have now become “the usual suspects.”  Plenty of natural gas in underground storage, abundant current production (some of it from new shale-trapped deposits so recently developed that cash flow is a consideration), an uncertain economic outlook that has industrial consumption recovering on some as-yet unidentified future time horizon and the weight of selling from technical traders eager to uncover sell-stops were all factors in the selloff.  Recovering oil prices, resurgent equities and a weaker dollar all contributed to the late rally.

In cash trading yesterday, Henry Hub prices were at $3.38-$3.55, down $0.04-$0.07 (DJN).  SoCal prices were at $3.00-$3.05, down $0.06-$0.07 on the day.  El Paso Permian prices were down $0.02-$0.10 at $2.87-$3.02.  Katy prices were down $0.11-$0.15 at $3.22-$3.37.  Waha prices were down $0.07-$0.08 at $2.95-$3.05.  Transco 6 was down $0.04-$0.17 at $3.83-$4.05/mmBtu.  There were no fresh quotes yesterday.

Palo Verde prices were last quoted at $28.00-$29.50/mwh.  Northeastern prices last traded at $31.75-$38.75.  Entergy was last at $30.50-$31.50.  Ercot was last at $31.00-$33.00/mwh. 

We said in yesterday’s report in this section that, “The real question, looking ahead, is whether prices will be able to build on any potential break below $3.50.”  And the very early answer to that question appears to be, “No.”  Prices were able to break $3.45, beneath which longs had felt a certain comfort that sell-stops might be safe.  In that respect, they were proven wrong.  They were not safe at that level.  But, once those stops were cleared out, the market seems to have had little reason to continue working lower.  Bargain-hunting, profit-taking by shorts and short-covering by stop-hunters all worked together to bolster quotes and send them back into only mildly negative territory – above $3.50.

The new major support is at $3.44, but its fate may turn out to be very much the same as that experienced by $3.50.  Sell-stops will accumulate beneath it, and they will ultimately serve as a force of attraction to stop-hunters with little other reason to be excited over the short side at existing prices.  There is, of course, a “rub.”  The problem is that there is no really compelling reason to buy if one is not already short.  Rig count declines are the most bullish factor, but they are a distant future influence.

Support is at $3.50-$3.53, $3.44-$3.45, $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 broke the support at $3.50, but did not finish below it.

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.  Last year, we had a build of 24 bcf.

EIA Report

News & Views

In trading on Globex, June crude oil prices were up $0.19 at $48.74/barrel at 1:30 AM EDT, this morning.  May heating oil prices were up 0.07 cents to 1.3485/gallon.  May RBOB prices were up 0.42 cents to $1.4186.  May natural gas was up $0.009 to $3.520/mmBtu. 

The somewhat muted, early response to last night’s API report was bullish.  It was “muted” because traders are holding the lion’s share of their response until after this morning’s DOE report.  In any event, traders were surprised, towards the bullish side, by this week’s API figures.  If the DOE follows suit, we expect more buying.

This week’s API report showed the opposite of what survey results have been predicting (and are still expecting for today’s DOE report).  Crude oil stocks were down 1.008 million barrels, gasoline stocks were up 107,000 barrels, and distillate stocks were up 458,000 barrels.  Implied demand was 9.667 mln bpd in gasoline and 4.219 mln bpd in distillate.  Utilization was up 2.2%, which is in line with what we have seen in previous years this week.

Crude oil prices were lower yesterday before short-covering and profit-taking pushed them back up again.  Today’s crude oil inventory figure will be important.

Heating oil prices broke below support at 129.98, but they only got to 129.79 before short-covering pushed them back up, again.  It looks like a stop-hunting expedition.

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 2.500        up 2.500          up 2.600 mln bbls

Distillate      dn 0.600        dn 1.000          dn 0.700

Gasoline      dn 0.300        dn 0.700          dn 0.400

Utilization   up 0.7%         up 0.7%           up 0.7%

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.

Last night’s API report gave traders a choice: They could buy against the surprisingly bullish decline in crude oil stocks, or they could sell against the equally unexpected builds in refined products.  The fact that they were buying was bullish.

An Illustrated Look at Energy Market Factors

A Look at Temperatures

It is still cold and wet in the North.

Temperatures on Saturday

Temperatures should warm as the week progresses.

Source:  http://www.weather.com

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