Market Review for Wednesday               

HIS week’s DOE report followed the lead of the API – halfway.  It showed unexpected builds in refined products stocks, the one area that had shown some bullish promise.  It failed to show the drawdown in crude oil stocks that had been reported by the API on Tuesday night, but it was the unexpected weakness in products that seems to have caught the attention of oil traders yesterday.

It may have been a leftover effect of the API report, but traders were selling refined products but were buying crude yesterday.  The end result is that both heating oil and gasoline are closer now to breaking down beneath the major support at 129.79 and 134.11.  In several respects, it was surprising that refined products prices did not break those levels yesterday.  That may be the one factor that the bulls can take away from this set of statistics.

Sneaking somewhat under the radar yesterday was a 3.0% increase in refinery utilization.  That tells us that aggregate maintenance is now largely over.  And it also tells us that more crude oil will be processed – into more refined products output. 

Yesterday’s report failed to be the diagnostic report we had been hoping for because there was nothing bullish in it.  Refined products sold off and the first two months of crude oil futures settled with minor gains.  Those gains look mostly insignificant.  The fundamentals are poor, we are running out of seasonal influence and turnarounds are largely behind us.  And the charts are under selling pressure.  It seems like a matter of time before prices fall.

Technicals

           Refined products were lower yesterday, but they traded inside Tuesday’s daily ranges.  The technical “event” of the day was the almost impossible-to-achieve gap that is now on the charts in crude oil.  These are becoming increasingly rare as round-the-clock, perpetual trading makes it almost impossible for traders to be surprised or for buying or selling to accumulate.  Crude is now climbing back towards a trendline that it broke on Monday (see page 6), but the gap has us perplexed.  It does seem legitimate, though.  Usually, it would be a bullish development, but its timing is odd.

Dollars per barrel

Above:  Crude had a curious gap higher yesterday.  Below:  The crack spread dropped dramatically yesterday.

Dollars per barrel

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 3 yards yesterday, making it fourth and 45 to go.  We expect the bears to take over on downs here.

Technical Support & Resistance

Oil Inventory Reports

    This week’s DOE report was almost entirely bearish.  All three major inventory categories experienced builds, and the year-on-year surpluses in inventories got worse.  In the case of gasoline, the year-on-year comparison went from a deficit of 1.3 mln bbls to a surplus of 2.1 mln bbls.  The year-on-year deficit in gasoline stocks had been one of the bullish features in this market.  Now, it looks like it is gone and is unlikely to return at any time in the near future.  This report also seems to have marked the unofficial end of turnarounds for the year.

   Distillate stocks are now 35.7 million bbls, or 33.49%, higher than a year ago.  Heating oil inventories are 13.8 mln bbls, or 61.61%, higher than they were a year ago.  Gasoline stocks are 2.1 million bbls, or 0.98%, lower.  Crude oil stocks are now 54.5 million bbls, or 17.24%, higher than a year ago.  Residual stocks are 3.2 mln bbls (8.10%) lower than a year ago, jet fuel stocks are up 0.9 mln bbls, (2.32%) higher than a year ago.  Utilization is 2.2% lower than a year ago and is 7.95% below the eight-year average.  It is 10.44% lower than the five-year, pre-Katrina average.  This deficit remains the most bullish factor.

                                                                    DOE Weekly Inventory Statistics

Source: US Department of Energy’s Energy Information Administration

Open Interest Analysis

      Crude oil open interest fell by 27,450 contracts on Tuesday, when prices were slightly higher.  That looks like short-covering, although there was clearly a large amount of long liquidation involved, as well.

      Heating oil open interest rose by 1,357 contracts on Tuesday, when prices were lightly higher.  That looks like new buying, which would be supportive.

      RBOB open interest rose by 779 contracts on Tuesday, when prices were mixed to higher.  That looks like new buying and is supportive.

      Natural gas open interest fell by 695 contracts on Tuesday, when prices were lower.  That looks like net long liquidation and is supportive, to a very minor degree.  There was clearly some new selling in there, as well.  We can’t hitch a wagon to this.

Tuesday’s Open Interest Changes:

Crude 1,140,230  dn 27,450        Heat 266,608   up 1,357       RBOB 210,662  up 779       Nat gas 659,500  dn 695          

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 finished fractionally higher yesterday, although the feel was that of a market finishing unchanged.  Traders seem to have been trying to take on board this week’s activity – without committing to new positions ahead of this morning’s EIA underground storage figures. 

This week’s activity has been confusing.  The bears had been waiting for a break below $3.50, and the technically-influenced among them were almost certainly waiting for a settlement beneath that figure to initiate a raft of short holdings.  While we have had three straight days that have traded beneath that important technical level, but none of them have settled below $3.50 – yet.  Some eager technical traders sold on the break below $3.50, on Monday, but they found themselves ahead of the curve, short in a market that may have only been looking to trigger sell-stops. 

And that sets up today’s report – potentially – as a deciding factor.  The recent history has been one of almost prematurely early builds in storage levels, and there is little reason to expect that to change, here, moving forward.  Temperatures have been cold and wet all week long in the Northeast, but we are already beyond the weather.  The lost industrial demand remains the central factor in this market, and that’s why we already have inventory builds on a steady basis, already. 

In cash trading yesterday, Henry Hub prices were at $3.46-$3.53, down $0.02 and up $0.08 (DJN).  SoCal prices were at $2.94-$3.03, down $0.02-$0.06 on the day.  El Paso Permian prices were down $0.07-$0.13 at $2.80-$2.89.  Katy prices were up $0.01-$0.05 at $3.23-$3.42.  Waha prices were down $0.07-$0.14 at $2.81-$2.98.  Transco 6 was up $0.00-$0.07 at $3.90-$4.05/mmBtu.  

Palo Verde prices were last quoted at $25.50-$27.50/mwh.  Northeastern prices last traded at $30.75-$38.00.  Entergy was last at $28.00-$29.50.  Ercot was last at $31.00-$31.50/mwh. 

Dow Jones has surveyed analysts and come up with an estimate for a build of 42 bcf in this morning’s report.  That would be well above last year’s Friday-week build of 24 bcf and the date-ended week build of 25 bcf.  It would also be above the five-year Friday build of 40 bcf and the five-year dated build of 35 bcf.  So, any way one cuts it, a build that meets expectations would have to be seen as bearish, even if the market more or less expects it. 

In addition to that, the cold, wintry weather is expected to come to what should be a permanent seasonal end by this weekend.  Temperatures will almost certainly remain on the colder side into May, but May is traditionally a warm month, even in the coldest reaches of New England and the Great Lakes.  There seems to be a chance that the weather may go straight from winter to summer this year, at least in the North.  As we write this, it is still clearly winter.

We should expect a bearish report this morning, and the market’s reaction will tell us something about how weak this market really is.  We should expect to see new lows … but if we do not, it could be a sign of hidden resilience.

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 were fractionally higher in light trading 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.  Last year, we had a build of 24 bcf.  Dow Jones is forecasting a build of 42 bcf today.

EIA Report

News & Views

In trading on Globex, June crude oil prices were down $0.16 at $48.69/barrel at 2:30 AM EDT, this morning.  May heating oil prices were down 0.64 cents to 1.3235/gallon.  May RBOB prices were down 1.06 cents to $1.3800.  May natural gas was down $0.033 to $3.499/mmBtu. 

Oil prices were lower in trading early this morning, as oil traders were looking to a weaker opening in European equities prices.  This week has seen a general reappraisal of the economic outlook, with stock traders focusing on the remaining weaknesses in financial companies and their earnings going forward.

Bloomberg wrote yesterday: “The Washington-based IMF said in a new forecast released today that the world economy will shrink 1.3 percent this year, compared with its January projection of 0.5 percent growth. The lender predicted expansion of 1.9 percent next year instead of its earlier 3 percent projection.”  At the heart of this is the reappraisal we discussed above.  There is a fresh belief that the current downturn will be deeper and will last longer than initially believed. 

Crude oil prices had a strange gap higher in the prices we saw yesterday, and that suggests some kind of pent-up buying.  It is bullish, and is rare at this point in any chart.

Heating oil prices traded inside Tuesday’s trading range yesterday, and they settled lower in response to this week’s DOE report.  Utilization jumping 3.0% will give us more supplies.

This week’s API report showed the opposite of what survey results were predicting.  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 was in line with what we have seen in previous years this week.

Four-week, total refined products demand came in at 18.464 million bpd, down 258,000 bpd from a week ago, and down 6.53% against a year ago.  Two weeks ago, it was down 4.44%.  Four-week gasoline demand is at 9.057 mln bpd, down 0.44%, compared to up 2.17% seven weeks ago.  Four-week distillate demand is now at 3.735 mln bpd, down 9.39%, compared to down 6.89% a week ago.  Four-week jet fuel demand is now at 1.422 mln bpd, down 9.25%.  Four-week residual fuel demand is at 0.449 mln bpd, down 29.40%.  Four-week propane demand is at 1.022 mln bpd, down 9.25% against a year ago.  Three weeks ago, residual demand was up 1.22%, jet fuel use was down 1.82% and propane use was down 6.06%.  All three have worsened substantially in the last three weeks. 

Traders and organizations are revisiting prospects for a recovery, the depth of the current recession and the probability of a recovery in 2010.  In the process, oil prices are looking weaker, along with equities and commodities in general. 

An Illustrated Look at Energy Market Factors

A Look at Gasoline Supply & Demand

Thirteen-week demand is at 8.978 mln bpd, down 1.59%.  Thirteen-week supply is at 9.878 mln bpd, up 0.96%.  Thirteen-week implied demand is at 9.909 mln bpd, up 0.41%.

A Look at Distillate Supply & Demand

Thirteen-week demand is at 3.922 mln bpd, down 8.43%.  Thirteen-week supply is at 4.317 mln bpd, up 2.33%.  Thirteen-week implied demand is at 4.348 mln bpd, down 2.93%.

A Look at Refinery Utilization

Utilization is 2.2% lower than a year ago and is 7.95% below the eight-year average.  It is 10.44% lower than the five-year, pre-Katrina average.  This deficit remains the most bullish factor.

Recommendations for Specific Market Segments