Prices for April 29th, 2009

Market Review for Wednesday    

HE Commerce department reported a larger decline in GDP than had been forecast.  The Energy Department reported a crude oil build of 4.1 million barrels and a distillate build of 1.8 million barrels.  And the World Health Organization raised the flu epidemic warning to a five from a four on a six-point scale.  So, all this was bearish, right?  No, apparently, it was not.  Traders were looking at equities prices, and the message that the economy is on a slow mend was the one that seems to have taken hold.

How traders got this message in the face of the Commerce Department report that GDP had fallen by 6.1% in the first quarter, which was worse than experts had expected.  It was the first time in 34 years that there have been three in a row lower.

This week’s DOE report leaves crude oil inventories 57.2 mln bbls, or 18%, higher than a year ago, and distillate stocks are now 37.8 mln bbls, or 37.8%, higher than a year ago, now.  Gasoline inventories, which represent the “bright spot” in the picture, are now even with year-ago levels. 

Demand was also weak in this latest report.  Total refined products four-week demand is now at 18.424 mln bpd, down 6.77% against a year ago.  Every individual four-week aggregate of consumption is lower against a year ago right now, and most of them are lower than they were a week ago, two weeks ago and four weeks ago, which more or less constitutes a trend. 

And the flu epidemic is becoming a pandemic, which gives those inclined towards protectionist measures, which is always at least a sizable minority in any given country at any given time, additional ammunition at a time when their policies are alluring, if precisely the opposite of what may be needed. 

Financial equities rebounded yesterday and the Fed spoke of the economy having “improved modestly,” which passes these days as a glowing ember of hope.  Traders chose to focus on these factors, which surprises us greatly.

Technicals

           Oil prices rallied yesterday, despite a seeming avalanche of bearish fundamentals.  That should make the gains gilt-edged; the market had every reason to decline, but did not.  That is normally a “tell.”  But, in this market, we have had a number of contradictory signals recently, any of which could have been enough to generate massive buying or selling and a decisive escape from the mud-bound trenches that prices seem to be stuck in.  This market has many ‘Great War’ aspects – heavy losses on both sides, false breakouts, immediate counterattacks and hand-to-hand fighting in mud.

Dollars per barrel

Above:  Contango has ceased to be a major influence in this market recently.

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 $48.55, $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  129.50, 127.85, 123.20, 119.00, 114.30, 112.50, 109.80, 104.55, and 95.95.  May RBOB has buy-stops over 145.30, 149.27, 152.76, 153.35, 153.75, 158.00, 158.90, & 160.77.  Sell-stops are under  136.55, 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 lost 10 yards on fourth down yesterday, which turns the ball back to the bulls with a first down today. 

Technical Support & Resistance

Jun crude oil                           Support:             $48.55-$48.65, $48.00-$48.15, $47.70-$47.85, $46.70-$46.85, $45.44-$45.55, $43.60.

                                           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:        145.15-145.30, 146.80-147.10, 149.05-149.30, 150.90-151.05, 151.85-152.00.

Oil Inventory Reports

    This week’s DOE report showed us the ninth consecutive yearly (week-on-week) build in crude oil stocks, which was bearish.  The year-on-year surplus went from 54.5 mln bbls to 57.2 mln bbls.  Distillate stocks also increased, and the year-on-year surplus went from 33.5 mln bbls to 37.8 mln bbls.  These factors were bearish, too.  On the bullish side of the ledger, we had a sharp drawdown in gasoline stocks, no doubt fueled by the drop in production of 298,000 bpd and the fall in imports of 276,000 bpd, to give us a net decline in supplies of 574,000 bpd.  That is huge at the end of April, when supplies should rise.

  Distillate stocks are now 37.8 million bbls, or 35.56%, higher than a year ago.  Heating oil inventories are 15.5 mln bbls, or 69.82%, higher than they were a year ago.  Gasoline stocks are even with a year ago.  Crude oil stocks are now 57.2 million bbls, or 18.02%, higher than a year ago.  Residual stocks are 3.3 mln bbls (8.33%) lower than a year ago, jet fuel stocks are up 1.3 mln bbls, (3.34%) higher than a year ago.  Utilization is 2.7% lower than a year ago and is 9.51% below the eight-year average.  It is 12.34% lower than the five-year, pre-Katrina average.  Utilization and gasoline supply are bullish islands.

                                                                    DOE Weekly Inventory Statistics

Source: US Department of Energy’s Energy Information Administration

Open Interest Analysis

      Crude oil open interest fell by 1,360 contracts on Tuesday, when prices were lower, which looks like long liquidation.  That should be supportive. 

      Heating oil open interest rose by 342 contracts on Tuesday, when prices were lower.  That looks like fresh selling and would be bearish. 

      RBOB open interest fell by 2,609 contracts on Tuesday, when prices were lower.  That looks like long liquidation, which would be supportive.

      Natural gas open interest fell by 7,618 contracts on Tuesday, when prices ended higher.  That looks like short-covering going into expiration, which makes it doubly bearish.

Tuesday’s Open Interest Changes:

Crude 1,139,336  dn 1,360        Heat 266,538   up 342       RBOB 207,735  dn 2,609       Nat gas 645,096  dn 7,618     

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

June natural gas futures finished lower yesterday after spending part of the day in positive territory.  On the ‘bright’ side, yesterday’s low was well above the recent lows we have seen, and the activity cut both ways yesterday, with buyers and sellers exchanging market leadership throughout the session.  That is at least a temporary change from the out-and-out selling that has been the bedrock of the market for so long.  June was higher than May on long-term charts.

Of course, there is every likelihood that yesterday’s comparative resilience was very temporary, indeed.  This morning’s EIA underground storage figures are expected to show a build of 81 bcf, according to the average of 15 analysts’ estimates collated by Dow Jones.  Last year, using the same Friday, there was a build of 86 bcf, with the five-year average a build of 75.4 bcf.  According to Dow Jones, the date-ended build last year was 77 bcf with the five-year date-ending weekly average coming in at a build of 69 bcf.  They do not differ appreciably enough to make a major difference.

We should expect this week’s report to meet or exceed most of the measures outlined above.  It has been a very long time since we have seen a bullish report in this market.  One might have expected to see something bullish from the cold weather we had a week ago, but it seems to have come too late.

In cash trading yesterday, Henry Hub prices were at $3.37-$3.47, up $0.14-$0.17 (DJN).  SoCal prices were at $2.98-$3.07, up $0.07-$0.23 on the day.  El Paso Permian prices were up $0.21-$0.28 at $2.85-$3.02.  Katy prices were up $0.14-$0.17 at $3.24-$3.39.  Waha prices were up $0.20-$0.20 at $2.90-$3.05.  Transco 6 was up $0.07-$0.17 at $3.87-$3.95/mmBtu.  

Palo Verde prices were last quoted at $28.00-$30.00/mwh.  Northeastern prices last traded at $30.50-$36.50.  Entergy was last at $28.00-$30.00.  Ercot was last at $28.00-$29.00/mwh. 

The DOE reported yesterday that marketed natural gas declined 8.6% in February as producers cut back on volumes being brought to the surface.  Total marketed natural gas came in at 1.67 trillion cubic feet (tcf) in February, compared to 1.86 tcf in January.  Curiously, though, because there were three fewer days in February, daily output was 60.6 bcf/day, up 1.2% from January’s 59.9 bcf/day. 

At the same time, the DOE revealed, natural gas consumption dropped from 2.7 tcf in January to 2.3 tcf in February.  Industrial use has fallen the most during the period, with chemical companies and gas-intensive businesses like glass, paper and smelters all reducing output because of the recession.    

The rapid switch from heating season to cooling season, seen last weekend, should have been bullish.  It would have been a year ago and in a number of previous years.  This year is different.  We are not sure we would know something bullish.

Support is at $3.33-$3.36, $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 were higher for June, but lower June to June.

Dollars per million Btu

Jun Natural Gas:          Support:         $3.33-$3.36, $3.15-$3.17, $3.10-$3.14, $2.88-$2.91, $2.83-$2.84, $2.74-$2.75.

                                                    Resistance:     $3.43-$3.44, $3.52-$3.53, $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.  Dow Jones expects a build of 81 bcf (or the analysts it surveyed do).

EIA Report

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

News & Views

The Fed hinted at a vague sense of hope.  Everything else is grim, but prices rallied.  And, there you have it. 

The market should be lower but is not.  That has the bears a little scared.

An Illustrated Look at Energy Market Factors

A Look at Gasoline Supply & Demand

Thirteen-week demand is at 9.016 mln bpd, down 1.38%.  Thirteen-week supply is at 9.864 mln bpd, up 0.58%.  Thirteen-week implied demand is at 9.946 mln bpd, down 0.02%.

A Look at Distillate Supply & Demand

Thirteen-week demand is at 3.866 mln bpd, down 9.62%.  Thirteen-week supply is at 4.305 mln bpd, up 1.42%.  Thirteen-week implied demand is at 4.305 mln bpd, down 3.83%.

A Look at Refinery Utilization

Utilization is 2.7% lower than a year ago and is 9.51% below the eight-year average.  It is 12.34% lower than the five-year, pre-Katrina average. 

Recommendations for Specific Market Segments