Prices for April 27th, 2009

Market Review for Monday           

IL prices were lower yesterday as traders returned from the weekend to bearish rather than bullish news.  We thought about covering it here on Sunday, but thought better of it, and it turns out we should have covered it.  We are talking about the pandemic of swine flu that has closed down Mexico City and seems to have spread to the US, Canada and Spain.  There were 40 confirmed cases in the US at 10 PM last night, with most of the cases in New York City.

              The fear is that this epidemic will have negative effects on travel and transportation use of fuel, as a result.  An estimated 86 people have died in Mexico from this flu, and there may be as many as 150 dead, but it should be noted that an estimated 25,000 to 30,000 Americans have died each year from the normal flu that typically goes around each winter.

Stock markets were lower yesterday because of the potentially negative effects of the flu on travel and trade, and it seems to have easily plugged into a general sense of fear and dread in our economy right now.  Still, some analysts saw signs of resilience in the markets, and losses were not as bad as many thought they could have been. 

We still have energy markets that have a heavy element of the psychological in them.  We had trouble, in our first look at the swine flu on Sunday, trying to figure out how it might end up affecting energy prices.  And, on Sunday, we wrongly culled it from our possible coverage as being too far afield of this market to warrant inclusion.  It just goes to show how many factors one needs to watch to stay on top of this market complex. 

Traders also seem to have been returning to the trend lower that existed in this market for most of last week, heading into Friday’s pre-weekend rally.  Recently, we have seen prices decline during the week, with short-covering on Friday, ahead of the weekend.  The selling often returns when traders come back on Monday’s.

Technicals

           Oil prices declined yesterday, with heating oil falling beneath support at 129.79-130.00 and gasoline dropping below support at 136.30-136.33.  Both closed above the broken support levels, but the breakdowns were enough to create a bearish picture in these two markets.  Heating oil now has support at yesterday’s low of 127.85, while gasoline has support, also at yesterday’s low of 135.20.  Crude oil has support at $48.00. 

Dollars per barrel

Above:  Crude oil prices gave back Friday’s gains yesterday. 

June crude oil now has buy-stops over $51.45, $52.45, $53.90, $54.66, $56.00, $59.00, $60.00, $62.28, $65.56, $70.46, & $71.80.  Sell-stops are under $48.00, $47.25, $46.92, $46.53, $43.62, $42.50, $42.00, $41.00, and $39.40.  May heating oil has buy-stops over 136.25, 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  127.85, 123.20, 119.00, 114.30, 112.50, 109.80, 104.55, and 95.95.  May RBOB has buy-stops over 144.20, 144.75, 149.27, 152.76, 153.35, 153.75, 158.00, 158.90, & 160.77.  Sell-stops are under  135.20, 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 14 yards yesterday to make it third and 15 to go, today.   

Technical Support & Resistance

Jun crude oil                           Support:             $48.00-$48.15, $47.70-$47.85, $46.70-$46.85, $45.44-$45.55, $43.60-$43.83, $42.50.

                                           Resistance:        $51.45-$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, 127.85-128.10, 123.20-123.40, 119.00-119.20.

                             Resistance:        136.10-136.25, 137.00-137.20, 139.35-139.50, 143.25-143.40, 145.20-145.35.

May Rbob                     Support:             138.70-138.85, 138.10-138.25, 137.05-137.25, 135.95-136.15, 135.20-135.35.

                                           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 967 contracts on Friday, when prices were higher, which looks like short-covering.  That would be bearish. 

      Heating oil open interest fell by 3,667 contracts on Friday, when prices were higher.  That looks like short covering, which would be bearish. 

      RBOB open interest grew by 298 contracts on Friday, when prices were higher.  That looks like new buying, which would be supportive.

      Natural gas open interest fell by 756 contracts on Friday, when prices ended lower.  That looks like long liquidation and is constructive.

Friday’s Open Interest Changes:

Crude 1,136,842  dn 967        Heat 264,613   dn 3,667       RBOB 211,884  up 298       Nat gas 660,783  dn 756       

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 yesterday, breaking down to $3.155 before short-covering came in to push quotes back up.  Dow Jones attributed yesterday’s fresh decline to the long-standing reason of abundant natural gas in storage.  That is, we suspect, true to at least a large degree, although nothing out yesterday changed storage levels from where they were (in the public knowledge) at the end of last week. 

We suspect that some of yesterday’s selling came in sympathy with the selling seen in crude oil and in equities.  It is difficult in this market to connect the dots between outside influences and futures prices with straight, full-line strokes.  We can connect them with dotted lines more easily, but even those occasionally break down and fail u.  What we mean by this is that drawing connecting lines between any specific event outside this market with a natural gas market response can be difficult.

That does not make it impossible, and we have any number of days when gas prices rose or fell on events in oil markets or, to a lesser extent, in equities or currencies markets.  Yesterday’s activity seems to have been influenced by the weakness in crude oil and refined products prices.  But, there can be no doubt that none of this would be possible were it not for the underlying weakness – which is a direct result of the overhang in natural storage figures.

In cash trading yesterday, Henry Hub prices were at $3.15-$3.26, down $0.12-$0.12 (DJN).  SoCal prices were at $2.70-$2.82, down $0.06 and up $0.05 on the day.  El Paso Permian prices were down $0.04-$0.07 at $2.55-$2.68.  Katy prices were down $0.09-$0.11 at $3.06-$3.20.  Waha prices were down $0.06-$0.08 at $2.59-$2.71.  Transco 6 was up $0.02-$0.08 at $3.82-$3.97/mmBtu.  

Palo Verde prices were last quoted at $24.25-$26.25/mwh.  Northeastern prices last traded at $34.00-$53.50.  Entergy was last at $31.50-$32.50.  Ercot was last at $27.50-$28.25/mwh. 

We noted the “funny” way we have gone straight from heating demand to cooling demand in the Northeast.  Yesterday, temperatures broke above 90 degrees, which is unusual in New England in the heart of the summer, in July or August, far less in late April.  Temperatures set new high readings yesterday and are expected to breach 90 again today, again establishing new records.  By Wednesday, though, the day’s high readings are expected to drop 25 degrees to 65 or so.  It has been an unusual week or so.

These high temperatures are creating cooling demand in the North, and some people turned off their boilers and then flipped on their air-conditioners just a few hours later, over the last few days.  Under almost any other circumstances, this record heat would be considered supportive.  With storage levels at such high levels right now, though, the market has not really taken any notice.  This seems to be an especially bad harbinger for the summer ahead; if 90-degree heat in April cant stir the market’s bullish juices, what will it need in July or August – for us to get Baghdad readings in Maine?

Support is at $3.15-$3.17, $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 $3.27-$3.28, $3.43-$3.44, $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 made new six-plus year lows yesterday.

Dollars per million Btu

Mar Natural Gas:         Support:         $3.15-$3.17, $3.10-$3.14, $2.88-$2.91, $2.83-$2.84, $2.74-$2.75, $2.64-$2.66.

                                                    Resistance:     $3.27-$3.28, $3.43-$3.44, $3.79-$3.82, $3.85-$3.86, $3.96-$4.00, $4.21-$4.23. 

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

By this afternoon, traders will start looking ahead to this evening’s API report and tomorrow morning’s DOE report.  Both are expected to show more bearish than bullish features.  

An Illustrated Look at Energy Market Factors

A Look at long-term charts

 The question is whether prices want to try to move higher or need to test their earlier lows.  Sooner or later, prices often test major lows.

 Gasoline prices look heavy enough for a decent correction, it seems.

Recommendations for Specific Market Segments