Prices for April 28th, 2009

Market Review for Tuesday        

CREASING fears over the spread of the swine flu that seems to have originated in Mexico gripped the headlines yesterday and continued to cast shadows over trading activities on exchanges around the world.  Commentators agreed that the timing of this outbreak could not be worse, coming, as it does, in the midst of a global recession.  It helped to keep energy bulls on the back foot yesterday, with buyers bidding beneath the market and trusting that sellers would reach down to fill their bids. 

              The epidemic was identified in Israel and New Zealand yesterday, showing how quickly diseases can proliferate around the planet in this modern age of rapid, long-distance transportation.  The fear, from our perspective, is that this transportation system may be slowed down by nations fearful of the flu, or that travelers will refuse to go to affected nations.

Traders were also talking about a “stress test” for banks that has been reduced to an equation by the federal government.  The results of this test are expected to be made public next week, but news leaked out yesterday that the government believes that both Citigroup and Bank of America need further injections of capital to withstand the worst that could occur.

There is a great deal of uncertainty concerning these stress tests, and observers have worried that they will create a ‘two-tier’ structure of banks – one that does not need capital, which will thereby make it even easier for them to raise, and a second group that needs more capital, which will increase its cost and reduce its availability to them.  That could make the picture worse, these observers fear.  Others are more optimistic and feel that it will provide an identified hurdle that needs to be cleared – but once cleared will leave the entire system in psychologically stronger condition. 

Last night’s API report was bearish, showing a build of 4.6 mln bbls in crude and 1.6 mln bbls in distillate stocks.  Gasoline stocks dropped 2.6 mln bbls and utilization dropped 0.6%.

Technicals

           The oil complex declined again, yesterday, although losses were relatively minor, which has been the most typical result recently.  All three major contracts had “inside” trading days yesterday, with lower highs and higher lows than those seen the previous day.  And all three contracts finished lower on the day, although they did not print new lows (they could not have with inside days).  Crude oil now has support at $48.00. 

Dollars per barrel

Above:  Crude oil prices have gained recently against refined products prices.

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 two yards yesterday on third and 15, and that makes it fourth and 13 to go.

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:             131.00-131.20, 129.50-129.75, 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:             138.10-138.25, 137.05-137.25, 136.55-136.70, 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 grew by 3,854 contracts on Monday, when prices were lower, which looks like new selling.  That would be bearish. 

      Heating oil open interest rose by 1,583 contracts on Monday, when prices were lower.  That looks like fresh selling and would be bearish. 

      RBOB open interest fell by 1,540 contracts on Monday, when prices were lower.  That looks like long liquidation, which would be supportive.

      Natural gas open interest fell by 8,069 contracts on Monday, when prices ended lower.  That looks like long liquidation and is constructive.

Monday’s Open Interest Changes:

Crude 1,140,696  up 3,854        Heat 266,196   up 1,583       RBOB 210,344  dn 1,540       Nat gas 652,714  dn 8,069     

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

Traders covered shorts in May natural gas prices in front of the contract’s expiration, and that gave us a bounce yesterday.  It was not much of a bounce, and we doubt we would have had one at all if it were not for the need to square positions.  Trading was described as being “choppy” by observers quoted by Dow Jones.  We will see more book-squaring in cash markets as traders wind down for the end of the month.

It was hardly much of a rally, and we have a very hard time imagining that prices will still be in a mood to advance by this afternoon, when traders are likely to start thinking about this week’s underground storage levels.  One has to expect that we will see a build of some amount, and the simple truth is that storage levels could go for a number of weeks without any builds before the existing surplus would be brought into line with previous years.

Underground storage figures are already well ahead of where they normally are by this point in the year.  Even if we were to see a smaller build than expected tomorrow morning – which is probably not going to be the case – we are still likely to have more gas in storage than we have had at the same time in any of a number of years.  That is likely to weigh on prices.  And, and the end of the day, through economic news, temperatures and anything else, the storage figures determine the underlying trend.

In cash trading yesterday, Henry Hub prices were at $3.20-$3.33, up $0.05-$0.07 (DJN).  SoCal prices were at $2.75-$3.00, up $0.05-$0.18 on the day.  El Paso Permian prices were up $0.02-$0.13 at $2.57-$2.81.  Katy prices were up $0.01-$0.05 at $3.07-$3.25.  Waha prices were up $0.11-$0.14 at $2.70-$2.85.  Transco 6 was down $0.09-$0.12 at $3.70-$3.88/mmBtu.  

Palo Verde prices were last quoted at $26.00-$27.25/mwh.  Northeastern prices last traded at $32.00-$38.25.  Entergy was last at $27.00-$28.00.  Ercot was last at $25.90-$27.00/mwh. 

Temperatures will return to more normal seasonal levels today, and they should be more springlike over the next several days.  Ultimately, though, the last few days of summer in the northern tier tell us what to expect in a very short period of time.  And one has to wonder if record high temperatures were something that we are likely to see fairly regularly this summer.  Since November, temperatures have trended towards the colder side.  It is hard to understand, yet, if this recent “heat wave” is a break in that pattern or just a one-time aberration.  We are likely to get a better read on what to expect this summer by the end of May.  If we have had more days on the cooler side, the cold trend will still be in place; if we have had more record heat, fairly regularly, then we will have had a break in the colder trend. 

We will also be interested to see if the recent heat was able to generate any cooling demand.  After a long, cold winter, many people may have just been glad to get some heat back in the equation.  Others may have turned air-conditioners on.

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 $3.35-$3.36, $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 rallied slightly 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:     $3.35-$3.36, $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

Today and tomorrow could be critical in terms of telling us if efforts to contain the spread of flu are working. 

If they seem to be, traders may see the last two days as over-reactions.

An Illustrated Look at Energy Market Factors

A Look at Crack Spreads

The gas crack seems to have reached a temporary peak.

 The heat crack is returning to major support.

Recommendations for Specific Market Segments