Prices for May 19th, 2009

Market Review for Tuesday           

ASOLINE prices continued to run away on the upside, partially on very light imports over the last few weeks.  We are also seeing some speculative buying in front of the official start of “Driving Season” this weekend.  Gasoline has a swing objective to 185.52 and then potentially another all the way to 209.33, although we do not expect to make that objective on this run.  Crude oil has swing objectives to $64.94 and $68.54 and it will be interesting to see which of those, if either, can be reached.  June crude expired yesterday, and there was short-covering into the final session.

We have a tendency to be early in our calls, and we were early expecting a top, here.  We still feel that prices are trying to build tops, although one cannot see any sign of that, yet, in gasoline futures.  Fires at two refineries highlighted low imports.

We mentioned the refinery fire and explosion at Sunoco’s Marcus Hook, Pa, refinery (175,000 bpd) in yesterday’s report.  It should keep an FCC idled for roughly a week.  There was another fire reported yesterday at Flint Hill’s refinery (288,000 bpd) in Corpus Christi, Texas, and it reportedly led to the closure of a fluid catalytic cracker, according to Reuters.  And emergency workers responded to a problem with a distillation unit (rated at 270,000 bpd) at Shell’s Deer Park, Texas refinery (333,700 bpd). We await news on the duration of any longer-term impact there.   

Traders took part of their cue yesterday from stock markets, which were mildly higher as oil markets closed.  The Dow Jones Industrial Average (DJIA) finished in negative territory, slightly, so we might expect to see some light profit-taking if it stays like this into this morning’s opening. 

Eni Spa also declared force majeure on 52,000 bpd of Nigerian crude oil output in response to the latest wave of violence and sabotage in that war-torn country.  Dow Jones quoted the Eurasia Group as having said that the most recent battles “mark a new round of violence … [that] may last for months.”  We have seen violence in Nigeria as a bullish fundamental factor every spring for as long as we can remember.  Well, it goes back at least to the beginning of this new millennium.

Technicals

           The oil complex was higher yesterday, with gasoline prices breaking to new highs.  Crude oil settled at its highest level since November 10th and, despite our comments to the effect that we see a top being constructed, neither crude nor gasoline has yet finished work on tops.  Both seem headed higher, making our bearish comments here before premature.  We have never been looking to get short, but we did leave a lot of money on the table on the long side.

Cents per gallon

Above:  Gasoline prices are now more than 35 cents premium to heating oil prices.  What a difference a year makes.

July crude oil now has buy-stops over $61.00, $62.28, $65.56, $70.46, $71.80, $76.25, $79.17, and $84.83.  Sell-stops are under $56.55, $56.15, $55.46, $53.50, $52.55, $50.00, $48.55, $48.00, $47.25, $46.92, $46.53, & $43.62.  June heating oil has buy-stops over 149.00, 150.30, 153.70, 154.00, 154.67, 155.10, & 160.25.  Sell stops are under 141.30, 140.90, 137.50, 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 176.60, 189.65, 199.90, 207.00, 213.99, 222.70, & 228.86.  Sell-stops are under 167.70, 166.35, 165.00, 163.65, 162.40, 157.50, 156.60, 150.35, 144.60, 140.00, 136.55, 135.20, 134.10, 133.55, 130.60, 124.00, 121.50, 118.25, 116.50, and 107.90.

Football: The bears lost another six yards yesterday, on second and 37 to go.  It is third and 43 to go, which is looking hard.

Technical Support & Resistance

Jul crude oil                            Support:             $58.90-$59.05, $56.55-$56.75, $56.10-$56.30, $55.45-$55.60, $53.50-$53.65.

                                           Resistance:        $60.90-$61.00, $62.25-$62.30, $65.50-$65.60, $70.35-$70.46, $71.65-$71.80.

Jun heating oil        Support:             145.40-145.55, 141.30-141.60, 140.90-141.00, 137.50-137.65, 132.00-132.20.

                             Resistance:        148.95-149.00, 149.72-149.75, 150.30-150.50, 152.40-152.50, 153.65-153.70.

Jun Rbob                       Support:             173.20-173.35, 167.70-167.85, 166.35-166.50, 165.00-165.20, 163.65-163.75.

                                           Resistance:        183.25-183.40, 185.90-186.10, 188.10-188.25, 189.55-189.70, 199.00, 199.75-199.90.

Oil Inventory Reports

    We feel that the most important number in this week’s DOE report will be the crude oil import figure.  At 8.7 mln bpd, imports are at drastically low levels, and are the culmination of a recent pattern of lower figures.  Crude oil imports have been at heir lowest aggregate averages in years, recently, as refiners have been trying to limit the amount of crude oil that ends up going into storage.  This task has been made more difficult by the slower-than-usual seasonal increase in utilization.

  Distillate stocks are now 39.9 million bbls, or 47.08%, higher than a year ago.  Heating oil inventories are 17.2 mln bbls, or 76.79%, higher than they were a year ago.  Gasoline stocks are 1.1 mln bbls (dn 0.52%) against a year ago.  Crude oil stocks are now 55.4 million bbls, or 17.58%, higher than a year ago.  Residual stocks are 3.1 mln bbls (7.79%) lower than a year ago, jet fuel stocks are up 0.7 mln bbls, (1.78%) higher than a year ago.  Utilization is 2.9% higher than a year ago and is 8.71% below the eight-year average.  It is 10.98% lower than the five-year, pre-Katrina average.

                                                                    DOE Weekly Inventory Statistics

Source: US Department of Energy’s Energy Information Administration  

Open Interest Analysis

      Crude oil open interest fell by 24,004 contracts on Monday, when prices were well higher, which suggests heavy short-covering.   In the last eight sessions, 70,486 contracts were added and 147,726 contracts taken off, suggesting distribution.

      Heating oil open interest rose by 313 contracts on Monday, when prices were higher.  That looks like more almost balanced buying (and selling, liquidation and new positions) and is neutral to supportive.

      RBOB open interest grew by 2,382 contracts on Monday, when prices were higher.  That looks like net new buying and would be bullish. 

      Natural gas open interest rose by 3,307 contracts on Monday, when prices were lower.  That looks like new buying and would be supportive. 

Monday’s Open Interest Changes:  

Crude 1,112,229  dn 24,004        Heat 260,460   up 313       RBOB 229,388  up 2,382       Nat gas 684,263  up 3,307      

CFTC Commitments of Traders  (for the period ended Tuesday, May 12th)   

As of May 12th:                 Long                   Short:

Crude oil                   170,991               167,925                           -contracts held by speculators:  1.02 long

                                         673,149               690,277                               held by the trade

                                         125,360               111,298                               held by small specs and hedgers.

Spreads….up 15,175 contracts   The ratio went from 1.06-to-one short to 1.02-to-one long in the last report.

   Large speculators liquidated 4,452 long contracts and covered 18,803 shorts over the week under review.  Commercials added 6,080 longs and added 27,572 shorts.  Small specs and hedgers added 32,049 longs and added 24,908 shorts.  Open interest grew by 48,852 contracts as prices rallied $5.01/barrel.  That makes it 107,470 contracts added on a two-week gain of $8.93.  It is bullish, except the best buying came from commission houses, which were selling along with commercials.  Eighty percent of the buying came from large speculative short-covering and commission house buying, or small traders; that’s bearish.

   The average large speculator has 2,060 long contracts (83 accounts), or 20 more contracts on average on three less accounts, and 1,513 shorts (111 accounts), or an average of 232 contracts less on 4 more accounts.  Commercials held 7,827 longs (86) or 114 less longs on average on two more accounts, and 7,343 shorts (94), or 367 more shorts on one less account. Reportable held 4,185 longs (268, unch) and 4,269 shorts (266 accts, up 1). The long average was up 63 while the short average was up 74.

Heating oil                 33,222                 13,086                           - contracts held by speculators:  2.54 to 1 long

                                         145,152               177,366                              held by the trade.

                                           42,093                 30,015                               held by small specs and hedgers.

Spreads….up 2,102 contracts.    The ratio of large speculative longs to shorts went from 2.16-to-one to 2.54-to-one in a week.

       Large speculators liquidated 967 longs and covered 2,764 shorts.  Commercial accounts liquidated 693 longs and added 3,114 shorts.  Small speculators and hedgers added 2,192 longs and added 182 shorts.  Open interest grew by 2,634 contracts as prices rallied 8.08 cents. That looks like new buying, which came from commission houses and small speculators and hedgers.

       The average large speculative long is holding 1,146 contracts (up 78 lots on 29 accounts, 3 less accounts), while the average short has 523 contracts (dn 166 lots on 25 accts, up 2 accts).  The average commercial long is holding 2,166 contracts (dn 376 contracts on 67 accts, up 4 accts) compared to the average short holding of 2,956 contracts (up 190 lots on 60 accts, dn 3 accts).  The average reportable position is 1,818 long (dn 59 lots on 119 accts, up 4 accts) while the average short holding is 2,115 (up 98 lots on 108 accts, dn 4).  Here, as well, small traders were buying from larger traders in classic distribution.

Rbob Gasoline           64,073                   8,658                          -contracts held by speculators:  7.40 to 1 long

                                          116,030               175.424                             held by the trade.

                                            17,643                 14,326                              held by small specs and hedgers.

Spreads…dn 128 contracts   The ratio of large speculative longs to shorts went from 4.88-to-one to 7.40-to-one in 2 weeks.

     Large speculative holdings grew by 4,188 longs and fell by 363 shorts over the latest week. Commercial holdings grew by 587 longs and grew by 2,886 shorts.  Small speculators and hedgers’ positions fell by 1,665 longs and fell by 139 shorts.  Open interest grew by 2,982 contracts as prices rallied 9.57 cents.  That looks like light, fresh buying, although this time we would have expected more of a change in the open interest.  It is bullish, but the ratio of large specs long to short is still very high.

   The average holdings are 1,116 contracts for each large speculative long (58) and 433 for each large speculative short (20).  The average commercial long now has 1,527 contracts long (76) and 2,040 short (86). Average reportable holdings are 1,252 long (155) against 1,484 short (133).  Large speculators had one more long account and four more short accounts, which increased the average long position by 54 contracts and increased the average short by 87 shorts.  There were eight more long accounts and five less short accounts in the reportable category, subtracting 36 and adding 56 contracts, respectively.

Naturalgas                88,069               219,806                           -contracts held by speculators:  2.69 to 1 short

                                         267,829               179,304                               held by the trade.

                                           84,146                 40,934                           held by small specs and hedgers.

Spreads…up 11,317 contracts    The ratio of large speculative shorts to longs went from 2.79-to-one to 2.69-to-one in a week.

  Large speculative holdings added 10,555 longs and added 11,442 shorts over the latest week. Commercial accounts added 2,056 longs, and added 5,616 shorts, while small speculators and hedgers added 4,421 longs and covered 26 shorts.  Open interest grew by 28,349 contracts as prices rallied $0.834/mmBtu.  That looks like fresh buying, which would be supportive.  Speculators were the best buyers during the week. 

  The average large speculator has 1,493 contracts (59) while each large speculative short is holding 2,556 shorts (86).  The average commercial long now has 3,434 contracts long (78) and 3,091 short (58). Average reportable holdings are 2,813 long (214) long and 3,506 short (184).  Large speculators closed four long accounts, which increased the average long holding by 263 contracts, and added five short accounts, which brought the average down 16 contracts.  The reportable category had 74 more longs on average, on 3 more accounts while the average reportable short held 154 more contracts with the same accounts.    

Natural Gas & Utility Generation

June natural gas futures seem to have been jolted back to reality yesterday, although we have trouble with the suddenness of the timing of this revelation.  On Monday, as we noted yesterday, natural gas traders had one eye on oil and the other on equities.  With both higher, gas prices followed suit.  Both were higher, again yesterday, at a number of critical moments, but gas traders could not (seemingly) have cared less.  Instead, as if struck by a thunderbolt from a clear blue sky, the market suddenly decided that fundamentals were important again, and traders sold in the names of high storage levels and poor demand, conditions that existed every bit as ferociously on Monday as they had on Tuesday. 

Some observers believed that he weather as the tipping point, largely because it so often can be in this market.  Temperatures had been cold in the greater New York area – cold enough to turn the heat back on – up through yesterday morning.  By afternoon, spring had returned, again.  And weather forecasts suggested that warmer readings were on their way east and north.  Others pointed to a Commerce Department report showing construction of homes and apartments had fallen nearly 13% during April, an especially unusual number of starts to start the spring.  His figure did not let the air out of oil’s balloon and had a minor impact on equities, but it seems to have ended the move higher in natural gas prices. 

In cash trading yesterday, Henry Hub prices were at $3.90-$4.02, down $0.04-$0.09 (DJN).  SoCal prices were at $3.55-$3.65, down $0.06-$0.12 on the day.  El Paso Permian prices were down $0.04-$0.06 at $3.44-$3.54.  Katy prices were down $0.04-$0.08 at $3.84-$3.89.  Waha prices were down $0.05-$0.09 at $3.45-$3.51.  Transco 6 was down $0.07-$0.13 at $4.30-$4.41/mmBtu, according to Dow Jones News (DJN).

Palo Verde prices were last quoted at $34.00-$35.75/mwh.  Northeastern prices last traded at $37.65-$41.50.  Entergy was last at $27.50-$28.50.  Ercot was last at $31.50-$32.05/mwh. 

In a strange and terribly early reminder of what could happen this summer, there is an outside chance of there being a tropical disturbance in the US Gulf, Dow Jones wrote yesterday.  It seems unlikely to cause distress to oil or gas facilities, but it is still a reminder of the dark side of summers in this market. 

The most amazing feature of natural gas trading is its unpredictable timing.  How is a hedger supposed to know which day the market will be following equities and which day it will return to its roots in supply and demand.  On which days will prices decide to take their lead from the dollar, oil, equities, the economy, weather or underground storage?  No one really knows until the move has been made, in most cases. 

Yesterday, a Commerce Department report on housing starts opened a window upon this market’s supply and demand factors, which are still rather sketchy.  Today, we can bank on the weekly oil statistics from the Department of Energy to lead gas prices for an hour or more, and by the afternoon, traders will turn their attention to this week’s EIA underground storage figures.  Apart from those scheduled events, it is an open game, often a guessing game, we fear.

Support is at $3.82-$3.86, $3.57-$3.60, $3.43-$3.46, $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 $4.22-$4.24, $4.31-$4.35, $4.53-$4.56, $4.65-$4.69, $4.85-$4.88, $5.01-$5.03, $5.22-$5.24, $5.55-$5.57, & $5.62-$5.64. 

Natural gas prices dropped dramatically yesterday, breaking from a small head & shoulders top.

Dollars per million Btu

Jun Natural Gas:          Support:         $3.82-$3.84, $3.57-$3.60, $3.43-$3.46, $3.33-$3.36, $3.25-$3.26, $3.15-$3.17.

                                                    Resistance:    $4.22-$4.24, $4.31-$4.35, $4.53-$4.56, $4.65-$4.69, $4.85-$4.88, $5.01-$5.03.

EIA Weekly Storage Figures

Last week’s EIA report showed a build of 95 bcf on expectations for a build of 99-100 bcf.  Stocks are now 497 bcf higher than a year ago, against a surplus of 491 bcf a week ago, a surplus of 464 bcf two weeks ago and a surplus of 459 bcf three weeks ago.  Stocks are now 32.78% higher than a year ago.  They are 374 bcf and 22.82% above the five-year average.

The five-year average for this week was a build of 89.4 bcf.  The eight-year build average was 90.4 bcf.  Last year, there was a build of 85 bcf.

EIA Report

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

News & Views

This week’s refinery fires underlined very heavy gasoline demand ahead of this Memorial Day Weekend.

An Illustrated Look at Energy Market Factors

A Look at Jet Fuel Prices

The jet fuel crack spread is near its major multi-year lows.

Recommendations for Specific Market Segments

There will be no report out Friday.  Markets will be closed on Monday, so we will have reports on Thursday and then Tuesday.  Anyone needing prices for Thursday can e-mail us and we will get them to you.