Prices for April 30th, 2009

Market Review for Friday & the Weekend

IL prices had a strong day on Friday, which ended the week with a bang.  Despite a weak start to the week and another set of bearish statistics from the API and DOE, the oil complex finished the week with some decent gains.  Gasoline, which lost 574,000 bpd of production and imports in Wednesday’s report, gained 6.99 cents a gallon.  Crude oil, which saw its stocks up 4.1 mln bbls, still managed to gain $1.65/bbl.  Heating oil, which had a distillate build of 1.8 mln bbls, gained 0.26 cents a gallon.  Natural gas even got into the act, gaining 14.4 cents/mmBtu.

On the bearish side, we had higher crude oil and distillate stocks, poor demand and fresh economic statistics telling us we are in a recession.  On the bullish side, utilization was down and gasoline supplies were lower.  And people were vaguely optimistic.

Refined products supplied (which is a demand surrogate) was down 6.77% to 18.424 million bpd, which Dow Jones says is nearly a 10-year low.  Crude oil stocks are at their highest level since the summer of 1990, and we are capable of surpassing the highs reached then with another one or two decent builds.

Refinery utilization is well below year-ago levels and is 9.5% below the eight-year average for this time of year.  If refineries start processing more, which they typically have during the month of May, one would expect the crude oil surplus to be transformed into a surplus in gasoline stocks and an even larger surplus (than the one we currently have)  in distillate stocks. 

Integrated refiners are in an awkward position.  If they ramp up runs, they could produce too much gasoline, diesel, jet, and the rest of the refined barrel for existing demand.  If they do not, crude oil stocks could just keep on growing.  They have already reduced imports (of crude) to their lowest levels in years, and it seems unlikely that they could actually reduce imports more without compromising long-term deals with suppliers.

Technicals

           Oil prices were higher on Friday, and it looks like crude oil prices are trying to assault the resistance at $54.66, the high printed on March 26th.  Gasoline prices are also after the high they reached on that same day, at 153.72.  Friday’s high was within half a cent of that high, and it now seems that we abandoned the March-to-May seasonal too early.  Getting in is always the easy part.  Getting out can be more complicated, especially in a recession year like this one.  Heating oil is not near resistance, but it has gotten away from support.  The picture looks fairly bright on the charts.

Cents per gallon

Above:  Crude prices seem to be working towards resistance at $54.66.

June crude oil now has buy-stops over $53.90, $54.66, $56.00, $59.00, $60.00, $62.28, $65.56, $70.46, & $71.80.  Sell-stops are under $50.00, $48.55, $48.00, $47.25, $46.92, $46.53, $43.62, $42.50, $42.00, $41.00, and $39.40.  June heating oil has buy-stops over 139.85, 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 132.00, 129.50, 127.85, 123.20, 119.00, 114.30, 112.50, 109.80, 104.55, and 95.95.  June RBOB has buy-stops over 153.35, 153.75, 158.00, 158.90, & 160.77.  Sell-stops are under 144.60, 140.00, 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 bulls gained 21 yards on second and nine on Friday, gaining a new set of downs for the first time in a while

Technical Support & Resistance

Jun crude oil                           Support:             $50.00-$50.40, $48.55-$48.65, $48.00-$48.15, $47.70-$47.85, $46.70-$46.85, $45.44.

                                           Resistance:        $53.60-$53.90, $54.50-$54.66, $55.80-$56.00, $58.85-$59.00, $59.90-$60.00.

Jun heating oil        Support:             1232.00-132.15, 131.00-131.20, 129.50-129.75, 127.85-128.10, 123.20-123.40.

                             Resistance:        139.70-139.82, 143.25-143.40, 145.20-145.35, 147.00-147.15, 147.65-147.80.

Jun Rbob                       Support:             144.60-144.75, 140.00-140.20, 138.10-138.25, 137.05-137.25, 136.55-136.70.

                                           Resistance:        153.20-153.35, 153.60-153.75, 157.85-158.00, 158.80-158.90, 160.65-160.77. 

Oil Inventory Reports

    Odds are that this week’s DOE report will give us our tenth consecutive build in crude oil stocks, based on previous years.  Six out of the last eight years have shown builds in crude oil stocks, for a six-year average build of 2.483 mln bbls.  Gasoline stocks have increased in every one of the last eight years, for an average build of 1.90 mln bbls.  Crude stocks and distillate stocks have both been higher in six of the last eight years, by an average of 2.483 mln bbls and 1.217 mln bbls, respectively.  Crude oil imports averaged 10.335 mln bpd, over the last five years.

  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 grew by 16,560 contracts on Thursday, when prices were higher, which looks like new buying and is supportive. 

      Heating oil open interest fell by 28 contracts on Thursday, when prices were lower.  That looks like net long liquidation, which would be modestly supportive.

      RBOB open interest fell by 40 contracts on Thursday, when prices were higher.  That looks like short-covering, which would be bearish.

      Natural gas open interest grew by 9,193 contracts on Thursday, when prices were lower.  That looks like new selling, which would be bearish.

Thursday’s Open Interest Changes:  

Crude 1,167,380  up 16,560        Heat 264,677   dn 28       RBOB 206,745  dn 40       Nat gas 659,775  up 9,193     

CFTC Commitments of Traders  (for the period ended Tuesday, Apr 28th)   

As of Apr 28th:               Long                   Short:

Crude oil                   174,308               174,000                           -contracts held by speculators:  1.002 short

                                         650,007               642,918                               held by the trade

                                           73,927                 81,324                               held by small specs and hedgers.

Spreads….dn 7,417 contracts   The ratio went from 1.08-to-one long to 1.002-to-one short in the last report.

   Large speculators liquidated 6,075 long contracts and covered 20,988 shorts over the week under review.  Commercials added 14,076 longs and added 9,572 shorts.  Small specs and hedgers liquidated 1,478 longs and added 17,939 shorts.  Open interest fell by 894 contracts as prices rallied $1.37/barrel.  That suggests net short-covering, which we did get heavily from large speculators.  Commercials were buying heavily, even as small speculators were selling aggressively.   

   The average large speculator has 2,152 long contracts (81 accounts), or 5 more contracts on average on three fewer accounts, and 1,758 shorts (99 accounts), or an average of 173 contracts less on two less accounts.  Commercials held 7,738 longs (84) or 113 less longs on average on three more accounts, and 6,988 shorts (92), or 292 less shorts on five more accounts.  Reportable held 4,211 longs (253, up 10) and 4,133 shorts (256 accts, up 7), 29 less longs on 10 more and 192 less on 7 more accounts.

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….dn 1,746 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 liquidated 1,731 longs and added 1,857 shorts.  Commercial accounts added 4,335 longs and covered 2,805 shorts.  Small speculators and hedgers liquidated 928 longs and added 2,624 shorts.  Open interest fell by 70 contracts as prices dropped 3.11 cents. That looks like net, long liquidation, which we saw from both speculative categories.

       The average large speculative long is holding 1,257 contracts (up 68 lots on 27 accounts, 3 less account), while the average short has 696 contracts (up 21 lots on 24 accts, up two accounts).  The average commercial long is holding 2,542 contracts (up 223 contracts on 61 accts, dn 4 accts) compared to the average short holding of 2,906 contracts (dn 141 lots on 63 accts, up two).  The average reportable position is 2,035 long (up 111 lots on 111 accts, dn 6 accts) while the average short holding is 2,113 (dn 63 lots on 112 accts, up 2).  The reportable short category added two accounts in the latest week.

Rbob Gasoline          53,966                  11,055                          -contracts held by speculators:  4.88 to 1 long

                                          122,022               167.065                             held by the trade.

                                            16,747                 14,615                              held by small specs and hedgers.

Spreads…up 289 contracts   The ratio of large speculative longs to shorts went from 9.75-to-one to 4.88-to-one in 3 weeks.

     Large speculative holdings fell by 2,433 longs and grew by 2,853 shorts over the latest week. Commercial holdings fell by 852 longs and fell by 6,096 shorts.  Small speculators and hedgers’ positions grew by 69 longs and rose by 27 shorts.  Open interest fell by 2,927 contracts as prices dropped 1.67 cents.  That looks like long liquidation and is supportive.  Large speculators and commercials were liquidating long positions.

   The average holdings are 899 contracts for each large speculative long (60) and 553 for each large speculative short (20).  The average commercial long now has 1,627 contracts long (75) and 2,013 short (83). Average reportable holdings are 1,257 long (152) against 1,379 short (140).  Large speculators had one more long account and two more short accounts, which decreased the average long position by 51 contracts and increased the average short by 97 shorts.  There were two more long and two more short accounts in the reportable category, which cut 36 contracts from the longs and 42 from the shorts.

Naturalgas                71,879               200,858                           -contracts held by speculators:  2.79 to 1 short

                                         261,319               172,019                               held by the trade.

                                           77,461                 37,782                           held by small specs and hedgers.

Spreads…dn 6,720 contracts    The ratio of large speculative shorts to longs went from 2.67-to-one to 2.79-to-one in 2 weeks.

  Large speculative holdings liquidated 398 longs and added 594 shorts over the latest week. Commercial accounts liquidated 3,420 longs, and covered 6,652 shorts, while small speculators and hedgers liquidated 3,866 longs and covered 1,626 shorts.  Open interest fell by 14,404 contracts as prices dropped $0.190/mmBtu.  That looks like long liquidation, which would be supportive.  All three categories were liquidating long holdings. 

  The average large speculator has 1,261 contracts (57) while each large speculative short is holding 2,575 shorts (78).  The average commercial long now has 3,111 contracts long (84) and 2,688 short (64). Average reportable holdings are 2,810 long (202) long and 3,319 short (183).  Large speculators added two long accounts, which decreased the average long holding by 53 contracts, and added 103 shorts on three fewer accounts.  The reportable category had 214 fewer longs on average, on two fewer accounts while the average reportable short held 51 fewer contracts on one less account. 

Natural Gas & Utility Generation

June natural gas futures jumped more than 17 cents per million Btu (mmBtu) on Friday, as bargain-hunting, pent-up demand, short-covering to take profits and fresh optimism over the economic future combined together to push quotes higher.  Dow Jones quoted an independent analyst who feels that investors are looking to find higher returns in preference to the safety that has been almost everyone’s prerequisite this year. 

Of course, a major shift in investor/speculator/trader thinking would change the nature of our markets, possibly dramatically.  If the individual cited is correct, which he could well be, it would signal a major change in the energy complex and would ultimately lead to a separation from equities.  At this stage, stocks and commodities may seem equally risky, but with potentially higher returns.  We think it is early for that transformation, but a week ago we thought we were on the brink of a steep decline.  This theory explains what has happened recently as well as anything anyone is saying right now.

We have seen more selling on Friday’s than buying in 2009, so last week’s strong finish was noteworthy.  That is especially true because of last Monday’s steep selloff.  Prices had a reversal week, but not a “key reversal” week.  Still, it bears watching; it is the most bullish pattern seen in quite a while.  It would be nice to see some fundamental interest, as well, though.

In cash trading on Friday, Henry Hub prices were at $3.25-$3.38, up $0.03-$0.11 (DJN).  SoCal prices were at $2.84-$2.97, up $0.02-$0.07 on the day.  El Paso Permian prices were down $0.02 and up $0.01 at $2.70-$2.85.  Katy prices were up $0.04-$0.05 at $3.11-$3.25.  Waha prices were up $0.00-$0.06 at $2.77-$2.95.  Transco 6 was up and down $0.01 at $3.55-$3.68/mmBtu.  

Palo Verde prices were last quoted at $25.50-$28.25/mwh.  Northeastern prices last traded at $35.25-$37.25.  Entergy was last at $29.00-$30.00.  Ercot was last at $27.50-$30.00/mwh. 

Natural gas traders have a history of picking and choosing which economic indicators to take as legitimate buy or sell signals, and there is a confounding inconsistency in the application of those signals in this market.  Some traders took comfort from an uptick in the Institute of Supply Management’s PMI, which was higher for April (see page 6).  These traders have been watching economic indicators stabilizing – sort of – lately.

At the same time, Baker-Hughes showed a decline of just one rig in Friday’s rig count, which now stands at 741 rigs actively in use.  The rate of decline in drilling and exploration has also stabilized, and it seems that the discretionary rigs have been idled.  We will be grateful for that at some future point, but it could be construed as being bearish, now. 

There are signs and reports that supply and demand both appear to be reaching equilibrium points.  Once again, we see these as being slightly premature, but we knew we were going to get there eventually.  It is getting closer, we believe.

Support is at $3.33-$3.36, $3.25-$3.26, $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 $3.43-$3.44, $3.52-$3.55, $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 finished strong on Friday.

Dollars per million Btu

Jun Natural Gas:          Support:         $3.33-$3.36, $3.25-$3.26, $3.15-$3.17, $3.10-$3.14, $2.88-$2.91, $2.83-$2.84.

                                                    Resistance:     $3.43-$3.44, $3.52-$3.55, $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 82 bcf on expectations for a build of 81 bcf.  Stocks are now 464 bcf higher than a year ago, against a surplus of 459 bcf a week ago, a surplus of 438 bcf two weeks ago and a surplus of 438 bcf three weeks ago.  Stocks are now 34.14% higher than a year ago.  They are 335 bcf and 22.51% above the five-year average.

For this week, the five-year average was a build of 71.4 bcf.  The eight-year build average was 73.0 bcf.  Last year, there was a build of 65 bcf. 

EIA Report

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

News & Views

Technically, the oil complex finished in a very strong position last week.  Fundamentals are less robust.

An Illustrated Look at Energy Market Factors

A Look at Last Week’s Most Important Supply Figures

This suggests that gasoline demand may be leveling.  Implied demand is above production and imports.

Utilization rates have adopted as home a level below where they historically have been.

Crude imports continue to languish, and are at multi-year lows – and yet crude stocks continue to grow.

Recommendations for Specific Market Segments

Monthly Average Prices →

Average Monthly Nymex Settlement Prices

Crude Oil

The Nymex average crude oil settlement price in April was the highest this year and is higher than the December, 2008 average.  It is 55% lower than the April average a year ago, and is the lowest April average since 2004.  It almost half the 2008 average.  Nonetheless, it is higher than any monthly average before September 2004.  It is also 1.90 times as large as the April, 2002 average.

Crude Oil      in dollars per barrel   

Open interest is for the final trading day of the month above.

Dollars per barrel

Heating Oil

The Nymex heating oil monthly average settlement price for April was higher than the previous two months, but was still below the January average this year.  Last year’s April average was 2.32 times as large.  It is the lowest April average since 2004, but is higher than every monthly average before September, 2004.

This April average is 2.06 times as large as the average for April, 2002. 

Heating Oil               in cents per gallon

Cents per gallon

Gasoline

The April average Nymex gasoline (now RBOB) settlement price was the highest this year.  At the same time, though, it was almost exactly half the price seen in April, 2008.  We have to go back to February, 2005 to find a lower monthly average, after the last few months.  The April 2009 average was more than a dollar lower than the average for 2008. 

In April, 2009, Americans spent $17.273 billion less on gasoline than they had a year earlier.  That means that Americans have spent $60.5 billion less on gasoline over the first four months of 2009 than they did over the first four months of 2008.  That is effectively a tax rebate of that amount. 

Gasoline                   in cents per gallon

Cents per gallon

Natural Gas

The average Nymex natural gas price for April was lower than any average since August, 2002.  April, 2009 was $6.72, or 65.39%, lower than April, 2008; the average a year ago was almost triple this April.  Despite that, this April average was $1.370/mmBtu higher than the average in January, 2002, or 62.5% higher.

Natural Gas              in dollars per million Btu (British thermal units)

Copyright Cameron Hanover, 2009

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