Prices for April 24th, 2009

Market Review for Friday & the Weekend 

HE oil complex was surprisingly higher on Friday, as traders reacted to higher equities prices (on the Dow Jones Industrial Average, or DJIA) and weaker US dollar values.  There also seems to have been short-covering in front of the weekend, after a rather poor week fundamentally and on the charts. 

              And our sense of timing seems to have been dreadfully amiss; we thought we were on the brink of a major selloff.  Instead, we had something of a strong and unexpected rally.  Once again, though, it came as the result of factors outside of oil.  The selling came as the result of the dollar and equities.  Last week’s real fundamentals, things like supply and demand, were abysmal.  Inventories were higher against a week ago and against a year ago and demand continued to worsen.

Earlier gains in the week had been anemic and lackluster, without the slightest hint of any upward momentum.  And all week long, traders had been talking about another leg lower in the economy, the increasingly grim outlook again and revisions lower in economic growth and the pushing forward of any economic recovery into the future. 

And, then, on Friday, all this talk was banished to the sidelines and a renewed sense of hope, vague as ever, of course, returned.  On Friday, traders had even managed to convert near-technical disasters last week into heroic examples of resilience – bloodless though they had been.  This was later bolstered by a Commerce Department report showing durable goods orders down, but less than the consensus of estimates.  March orders dropped 0.8%, almost half the 1.5% decline predicted, and traders then brushed off a revision in February’s data, showing orders up 2.1% rather than the initially reported gain of 3.5%.  So, we ‘saved’ 0.7%, lost 1.4% (twice the current ‘savings) and still managed to cast a bullish spin on the numbers.  That is the sort of response we often associate with a market that wants to go higher.  We still have doubts.

Technicals

           Oil prices advanced briskly on Friday, in a surprising reversal of just about everything we saw and did last week.  Crude oil prices now look like they may want to run to the upside, although this could just be a bout of short-covering ahead of a weekend, before new selling returns.  Heating oil found support on Friday just above 130.00, with major support at 129.79.  Gasoline found support last week at 136.30-136.33. 

Dollars per barrel

Above:  Crude oil prices advanced steeply on Friday,

June crude oil now has buy-stops over $52.45, $53.90, $54.66, $56.00, $59.00, $60.00, $62.28, $65.56, $70.46, & $71.80.  Sell-stops are under $48.80, $48.40, $47.25, $46.92, $46.53, $43.62, $42.50, $42.00, $41.00, and $39.40.  May heating oil has buy-stops over 137.20, 143.40, 145.40, 147.15, 147.80, 150.50, 152.85, 154.00, 154.67, 155.10, 160.25 & 164.80.  Sell stops are under  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 144.75, 149.27, 152.76, 153.35, 153.75, 158.00, 158.90, & 160.77.  Sell-stops are under  138.74, 137.00, 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 bears picked up the ball on Friday morning, and were under pressure right away.  It is second and 29 to go.   

Technical Support & Resistance

Jun crude oil                           Support:             $49.00-$49.15, $47.70-$47.85, $46.70-$46.85, $45.44-$45.55, $43.60-$43.83, $42.50.

                                           Resistance:        $51.60-$51.75, $52.35-$52.45, $53.60-$53.90, $54.50-$54.66, $56.00.

May heating oil      Support:             132.25-132.40, 129.75-130.11, 127.95-128.10, 123.20-123.40, 119.00-119.20.

                             Resistance:        137.00-137.20, 139.35-139.50, 143.25-143.40, 145.20-145.35, 146.40-146.50.

May Rbob                     Support:             138.70-138.85, 138.10-138.25, 137.05-137.25, 136.30-136.50, 135.95-136.15.

                                           Resistance:        144.60-144.75, 146.80-147.10, 149.05-149.30, 150.90-151.05, 151.85-152.00.

Oil Inventory Reports

    This week has been remarkably consistent in terms of crude oil stock changes; in the last eight years, we have seen builds in crude oil stocks in all eight years, for an average build of 3.506 mln bbls.  Distillate stocks have been evenly cut in half, with the builds and draws canceling each other out over an eight-year period.  Gasoline stocks have been higher in five years and lower in five years, giving us an eight-year average build of 1.069 mln bbls.  Utilization has averaged 92.21% over the last eight years, while crude oil imports have averaged 10.324 mln bpd over the last five years.

  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 8,282 contracts on Thursday, when prices were higher, which looks like short-covering.  That would be bearish. 

      Heating oil open interest fell by 62 contracts on Thursday, when prices were lower.  That looks like light long liquidation, which would be supportive.

      RBOB open interest grew by 2,646 contracts on Thursday, when prices were higher.  That looks like new buying, which would be supportive.

      Natural gas open interest fell by 719 contracts on Thursday, when prices ended lower.  That looks like long liquidation and is constructive.

Thursday’s Open Interest Changes:

Crude 1,185,748  up 4,498        Heat 268,385   dn 62       RBOB 211,586  up 2,646       Nat gas 661,581  dn 719       

CFTC Commitments of Traders  (for the period ended Tuesday, Apr 21st)  

As of Apr 21st:               Long                   Short:

Crude oil                   180,383               194,988                           -contracts held by speculators:  1.08 short

                                         635,931               633,346                               held by the trade

                                           75,405                 63,385                               held by small specs and hedgers.

Spreads….dn 15,749 contracts   The ratio went from 1.03-to-one long to 1.08-to-one short in the last report.

   Large speculators liquidated 599 long contracts and added 18,968 shorts over the week under review.  Commercials liquidated 35,541 longs and covered 52,234 shorts.  Small specs and hedgers liquidated 500 longs and covered 3,374 shorts.  Open interest fell by 52,389 contracts as prices dropped $2.90/barrel.  That suggests long liquidation, which we seem to have seen from the commercial category.  Large speculators were selling new shorts aggressively as the trade covered shorts.   

   The average large speculator has 2,147 long contracts (84 accounts), or 90 more contracts on average on four fewer accounts, and 1,931 shorts (101 accounts), or an average of 97 contracts more on five more accounts.  Commercials held 7,851 longs (81) or 43 more longs on average on five fewer accounts, and 7,280 shorts (87), or 338 less shorts on three less accounts.  Reportable held 4,382 longs (243, dn 17) and 4,325 shorts (249 accts, dn 3), 87 more longs on 17 fewer and 143 less on 3 less. 

Heating oil                 35,676                 14,844                           - contracts held by speculators:  2.40 to 1 long

                                         150,744               185,878                              held by the trade.

                                           41,557                 27,255                               held by small specs and hedgers.

Spreads….up 1,465 contracts.    The ratio of large speculative longs to shorts went from 2.97-to-one to 2.40-to-one in a week.

       Large speculators added 546 longs and added 3,005 shorts.  Commercial accounts added 7,857 longs and added 3,132 shorts.  Small speculators and hedgers liquidated 152 longs and added 2,114 shorts.  Open interest grew by 9,716 contracts as prices dropped 5.45 cents. That looks like net, new selling, which would be bearish. 

       The average large speculative long is holding 1,189 contracts (dn 22 lots on 30 accounts, 1 more account), while the average short has 675 contracts (up 111 lots on 22 accts, up one account).  The average commercial long is holding 2,319 contracts (up 121 contracts on 65 accts, same) compared to the average short holding of 3,047 contracts (dn 50 lots on 61 accts, up two).  The average reportable position is 1,924 long (up 85 lots on 117 accts, same) while the average short holding is 2,176 (up 10 lots on 110 accts, up 3).  The reportable short category added three accounts in the latest week).

Rbob Gasoline          56,399                   8,202                          -contracts held by speculators:  6.88 to 1 long

                                          122,874               173.161                             held by the trade.

                                            16,678                 14,588                              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 6.88-to-one in 2 weeks.

     Large speculative holdings grew by 1,594 longs and grew by 2,448 shorts over the latest week. Commercial holdings grew by 4,609 longs and rose by 1,052 shorts.  Small speculators and hedgers’ positions fell by 1,695 longs and rose by 1,008 shorts.  Open interest grew by 5,104 contracts as prices dropped 4.32 cents.  That looks like good, new selling and is negative.  Everyone was adding fresh shorts last week, with large speculators and commercials buying into weakness.

   The average holdings are 956 contracts for each large speculative long (59) and 456 for each large speculative short (18).  The average commercial long now has 1,617 contracts long (76) and 2,037 short (85). Average reportable holdings are 1,293 long (150) against 1,421 short (138).  Large speculators had one less long account and the same number of short accounts, which increased the average long position by 43 contracts and the average short by 136 shorts.  There were two less long and two more short accounts in the reportable category, which added 62 contracts to the longs and 9 to the shorts.

Naturalgas                72,277               200,264                           -contracts held by speculators:  2.77 to 1 short

                                         264,739               178,671                               held by the trade.

                                           81,327                 39,408                           held by small specs and hedgers.

Spreads…up 1,257 contracts    The ratio of large speculative shorts to longs went from 2.67-to-one to 2.77-to-one in a week.

  Large speculative holdings liquidated 3,496 longs and covered 2,118 shorts over the latest week. Commercial accounts added 135 new longs, and covered 4,879 shorts, while small speculators and hedgers liquidated 1,844 longs and added 1,792 shorts.  Open interest fell by 3,948 contracts as prices dropped $0.178/mmBtu.  That looks like long liquidation, which would be supportive.  Large and small speculators were liquidating long holdings. 

  The average large speculator has 1,314 contracts (55) while each large speculative short is holding 2,472 shorts (81).  The average commercial long now has 3,115 contracts long (85) and 2,667 short (67). Average reportable holdings are 2,834 long (204) long and 3,370 short (184).  Large speculators cut two accounts, which increased the average long holding by 15 contracts, on twp fewer accounts.  The reportable category had the same number of long accounts, and decreased the average long by 10 contracts, and three new short accounts were added, as the average holding dropped by 88 contracts. 

Natural Gas & Utility Generation

May natural gas prices dropped to new, recent lows on Friday, breaking all the way down to $3.26 before rallying lightly.  Prices still ended the day beneath $3.30/mmBtu, and they managed to print four new lows last week.  Warming temperature readings in the Midwest and Northeast led traders into dumping any remaining longs they had been holding, while technical traders were getting short.  The bottom line is that the natural gas market started and ended on a weak not last week.

Clearly, the weather took a major turn.  On Thursday it was cold and wet in New England and felt very much like winter.  We still had our boilers on.  By Saturday, it felt like summer, and we could have easily used air-conditioning, if it had not just seemed so inappropriate.  The National Weather Service (NWS) expects warmer-than-normal readings in the Midwest and along the East Coast over the next week or two. 

If temperatures are as hot as they were over this past weekend, we could actually go straight from heating demand to cooling demand.  And, the hot weather seems no more likely to eat into underground storage levels than the cold did.  We can apparently have all the space-heating or cooling use we want; the overhang in storage needs industrial use to decline. 

In cash trading on Friday, Henry Hub prices were at $3.27-$3.38, down $0.22-$0.31 (DJN).  SoCal prices were at $2.65-$2.88, down $0.02-$0.21 on the day.  El Paso Permian prices were down $0.09-$0.17 at $2.59-$2.75.  Katy prices were down $0.06-$0.12 at $3.15-$3.31.  Waha prices were down $0.13-$0.17 at $2.67-$2.77.  Transco 6 was up $0.00-$0.04 at $3.74-$3.95/mmBtu.  

Palo Verde prices were last quoted at $26.50-$27.75/mwh.  Northeastern prices last traded at $28.50-$56.25.  Entergy was last at $36.00-$37.75.  Ercot was last at $28.50-$29.25/mwh. 

Certain aspects of this market are what one could only call, “funny.”  Traders sold off prices on Friday, because temperatures were forecast to “moderate,” after an exceptionally long winter.  Traders sold on the expectation that the one source of bullish hope in the market – space heating – would disappear.  And the heating aspect did disappear.  What we find funny is the possibility that we could quite quickly end up in space-cooling season, which could add back to the market the recently lost heating demand in the form of new cooling demand. 

As we mentioned above, it really doesn’t matter.  Whether there is heating demand or cooling demand, neither will make up for lost industrial demand.  If we ever actually see a real spring - a period of mild, temperate readings – we might be able to figure out what our real baseload consumption is.  Right now, we just know that it is lower than it has traditionally been.

It is very hard to say where prices may find lasting support.  We have to expect more of this pattern of stair-stepping lower.  Sell-stops will periodically offer continuing or fresh reasons for additional weakness … until one day, when it can go no lower.

Support is at $3.26-$3.28, $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-$3.81, $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 end at new six-plus year lows on Friday.

Dollars per million Btu

Mar Natural Gas:         Support:         $3.26-$3.28, $3.10-$3.14, $2.88-$2.91, $2.83-$2.84, $2.74-$2.75, $2.64-$2.66.

                                                    Resistance:     $3.43-$3.44, $3.79-$3.82, $3.85-$3.86, $3.96-$4.00, $4.21-$4.23, $4.34-$4.38. 

EIA Weekly Storage Figures

Last week’s EIA report showed a build of 46 bcf on expectations for a build of 42-45 bcf.  Stocks are now 459 bcf higher than a year ago, against a surplus of 438 bcf a week ago, a surplus of 438 bcf two weeks ago and a surplus of 402 bcf three weeks ago.  Stocks are now 35.80% higher than a year ago.  They are 322 bcf and 22.69% above the five-year average.

For this week, the five-year average is a build of 75.4 bcf.  The eight-year build average is 71.75 bcf.  Last year, there was a build of 86 bcf.

EIA Report

Bcf, or Billions of cubic feet.  Source:  Energy Information Administration, US Department of Energy

News & Views

It is hard to tell how much of Friday’s buying was short-covering ahead of the weekend.

It seems that some measure was, based on selling seen overnight.   

An Illustrated Look at Energy Market Factors

A Look at other News

In an interesting comment made Saturday, Saudi Arabian Oil Minister Ali Naimi said, “You know how detrimental they were when prices went up to $150 [a barrel], prices are driven up or down by speculating,” he told Dow Jones.  He then added something between a request and a warning by saying, “Don’t speculate.”  He said that he fears that speculation is returning to the market. 

When asked more obvious questions about the kingdom’s likely policy stance when the ministers next meet on May 28th, he told reporters that is was “too premature” for him to say, yet.  This is in keeping with long-standing Saudi policy on the matter; it never discusses its stance until we get to the meeting – unless it is actively trying to push quotes higher or lower.  Mr Naimi was quoted last month as saying that Opec had succeeded in putting a floor under prices, but warned that current prices were too low to encourage new drilling or exploration.

Iranian Oil Minister Gholam Hossein Nozari said on Saturday that Iran always worries about excess supplies in the spring, but that this year the decline in demand is worse than usual because of the global recession.  We will assess the economy and market situation at the next Opec meeting in May.  We think by then we will have a clear vision of the situation and we’ll make a decision.”

International Monetary Fund (IMF) Managing Director Dominique Strauss-Kahn congratulated countries for embracing a consensus on stimulus and support for financial systems, but he noted that countries will need to have an “exit strategy” out of the current crisis.  If stimulus measures are successful in 2009, there will be much less need for fresh stimuli packages in 2009. 

A Look at Jet Fuel Prices

Recommendations for Specific Market Segments