Prices for May 20th, 2009

Market Review for Wednesday    

HE DOE showed declines in crude oil and gasoline stocks, again, this week, on the back of low refining rates and very low crude oil imports.  Normally, we see the two with very different futures at this time of year, as refiners typically increase runs, which usually eat into crude oil stocks.  But it also increases the production of gasoline, which has not happened to the same degree as usual this year.  That fact has combined with the normal anticipation of heavier demand with the Memorial Day Weekend.  Demand jumped 321,000 bpd in this week’s figures, as refiners moved product from primary to secondary storage ahead of the holiday weekend.  Gasoline prices have advanced almost 14 cents since last Friday’s close, and has gained more than 45 cents since April 27th.  This buying has all been on anticipation and on hope. 

There was also support yesterday from a weaker dollar and from higher equities prices, at least before the Nymex closed yesterday.  There was also news yesterday that Iran had successfully tested a new two-stage, medium-range missile.  Iran has been out of the headlines recently, but it threatens to return to the top of the card-pile at any given time. 

The thing is, despite the one-week jump in movement from primary (refinery-held) storage to secondary (reseller-held) storage, the demand does not typically jump until after Independence Day.  There will be driving this weekend, but we have a hard time seeing it reaching last year’s levels, strictly because of the large number of people who are now unemployed.  Memorial Day Weekend is more of an oasis or outpost of demand in a broader period of improving, though not yet peak demand.  Utilization is usually increasing now.

Despite recent draws in inventories, there is still plenty of oil available.  Crude oil stocks are still just 12 million barrels or so beneath all-time record high inventory figures and they are now 56.9 million barrels, or 18.26%, higher than a year ago.  Gasoline inventories are only slightly lower (4.8 mln bbls, 2.29%) than year-ago levels.  Distillate stocks are now 39.0 mln bbls (35.74%) higher than a year ago.

Technicals

           The oil complex completed its technical breakouts yesterday with a decisive breakout to the upside in heating oil, giving it a swing objective to 167.13, in addition to a previous swing objective to 165.83.  Gasoline reached and exceeded its objective to 185.52, leaving an objective to 209.33.  Crude oil has a new swing objective to $72.14, in addition to previous objectives to $64.94 and $68.54. We do not know if these will be reached, but they are on the charts.

Dollars per barrel

Above:  Crude oil prices have been moving nearer to backwardation over the last several weeks.

July crude oil now has buy-stops over $62.26-$62.28, $65.56, $70.46, $71.80, $76.25, $79.17, and $84.83.  Sell-stops are under $59.85, $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 154.53-154.67, 155.10, 160.25, 164.80, 166.90, 172.71, 176.70, 178.52, 183.02, 189.06, 192.12, 193.45, and 199.20. Sell stops are under 148.40, 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 187.25, 189.65, 199.90, 207.00, 213.99, 222.70, 228.86, 240.10, 250.40, 252.00, 265.10, 267.85, 270.85, 272.00, and 280.25.  Sell-stops are under 180.00-180.50, 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.

Football: The bears lost another 19 yards yesterday, on third and 43 to go, which makes it fourth and an almost impossible 62.

Technical Support & Resistance

Jul crude oil                            Support:             $59.85-$60.10, $58.90-$59.05, $56.55-$56.75, $56.10-$56.30, $55.45-$55.60.

                                           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:             148.40-148.60, 145.40-145.55, 141.30-141.60, 140.90-141.00, 137.50-137.65.

                             Resistance:        154.45-154.55, 149.72-149.75, 150.30-150.50, 152.40-152.50, 153.65-153.70.

Jun Rbob                       Support:             180.50-180.70, 173.20-173.35, 167.70-167.85, 166.35-166.50, 165.00-165.20.

                                           Resistance:        185.90-186.10, 187.10-187.25, 188.25-188.40, 189.55-189.70, 199.00, 199.75-199.90.

Oil Inventory Reports

    This week’s DOE report had its share of bullish factors, with crude oil and gasoline stocks both lower on the week.  The gasoline draw was partially the result (2.25 mln bbls, roughly) of this week’s jump in movement from primary to secondary storage, which constitutes published demand.  The draw in crude oil stocks was the result of continuing low imports, which were less than 9 million bpd for the second week running.  If imports continue like this, crude markets will suffer.

  Distillate stocks are now 39.0 million bbls, or 35.74%, higher than a year ago.  Heating oil inventories are 17.0 mln bbls, or 74.24%, higher than they were a year ago.  Gasoline stocks are 4.8 mln bbls (dn 2.29%) lower against a year ago.  Crude oil stocks are now 56.9 million bbls, or 18.26%, higher than a year ago.  Residual stocks are 3.0 mln bbls (7.50%) lower than a year ago, jet fuel stocks are 0.1 mln bbls, (0.25%) higher than a year ago.  Utilization is 6.1% lower than a year ago and is 11.41% below the eight-year average.  It is 13.60% lower than the five-year, pre-Katrina average.  That is the most bullish fact.

                                                                    DOE Weekly Inventory Statistics

Source: US Department of Energy’s Energy Information Administration  

Open Interest Analysis

      Crude oil open interest fell by 141 contracts on Tuesday, when prices were higher, which suggests net short-covering.   In the last nine sessions, 70,627 contracts were added and 147,726 contracts taken off, suggesting distribution.

      Heating oil open interest rose by 162 contracts on Tuesday, 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 1,099 contracts on Tuesday, when prices were higher.  That looks like net new buying and would be bullish. 

      Natural gas open interest fell by 3,740 contracts on Tuesday, when prices were lower.  That looks like new selling and would be negative. 

Tuesday’s Open Interest Changes:  

Crude 1,092,138  dn 141        Heat 260,622   up 162       RBOB 230,487  up 1,099       Nat gas 680,523  dn 3,740            

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 rallied yesterday as natural gas traders returned to following crude oil and, to a lesser extent, a firmer stock (equities) market and a weaker dollar.  Nevertheless, the bullish traders were unable to build any genuine movement higher in the market, as more than sufficient supplies, as evidenced by storage levels 33% higher than a year ago and 23% higher than the five-year average for this time of year, hang over this market.  Without some help from the weather or a strong case for a resumption of industrial demand at a defined point in time, the bulls were lost before they really got started.  More than anything, yesterday’s settle in positive territory seems to have been short-covering by traders with a healthy respect for the market’s ability to generate a rally going into a long weekend. 

The National Weather Service (NWS) is calling for cooler-than-normal readings in the Midwest, Southwest and Southeast, with near-normal readings in the Northeast next week.  Temperatures are expected to be colder than normal “across the eastern half of the country into the first week of June,” Dow Jones reported in its natural gas roundup last night.  There seems to be a pattern in that and, unless it changes, we may be in for a mild summer, which would cut into air-conditioning needs, especially in the North.  That would keep natural gas prices on the defensive. 

In cash trading yesterday, Henry Hub prices were at $3.73-$3.86, down $0.16-$0.17 (DJN).  SoCal prices were at $3.35-$3.45, down $0.20-$0.20 on the day.  El Paso Permian prices were down $0.21-$0.24 at $3.23-$3.30.  Katy prices were down $0.17-$0.22 at $3.62-$3.71.  Waha prices were down $0.17-$0.18 at $3.27-$3.34.  Transco 6 was down $0.06-$0.20 at $4.10-$4.35/mmBtu, according to Dow Jones News (DJN).

Palo Verde prices were last quoted at $31.50-$32.50/mwh.  Northeastern prices last traded at $35.00-$43.50.  Entergy was last at $28.50-$29.50.  Ercot was last at $32.25-$33.50/mwh. 

Prices still look heavy and they seem to have run their course – for now.  If we had to pick on which side the bigger move was coming next, we would be confounded.  We could still see prices run up to $5.50-$5.75 to further expand the upper end of their trading range or we could take a shot at testing the lows at $3.155.  We do not believe that we would break that low by much if we get back down there – although the urge to get a two-dollar handle print would certainly be extreme. 

Fundamentally, it’s not even close.  The recession seems to have settled in for an extended stay and there are clearly not going to be any successful quick fixes.  As a result, industrial demand’s resurgence is not even on anyone’s horizon, yet.  Lower production, from reduced rig counts, is on the horizon, but it is uncertain how far away that might be.  Temperatures have trended cooler since November and are on that course, now.  That is not supportive a month before the start of summer.  Storage levels are abundant and seem likely to grow.  Fundamentally, it is bleak.  The biggest hope is technical.

Support is at $3.81-$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 $4.01-$4.03, $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:         $3.81-$3.84, $3.57-$3.60, $3.43-$3.46, $3.33-$3.36, $3.25-$3.26, $3.15-$3.17.

                                                    Resistance:    $4.01-$4.03, $4.22-$4.24, $4.31-$4.35, $4.53-$4.56, $4.65-$4.69, $4.85-$4.88.

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.  Dow Jones is looking for a build of 94 bcf, Bloomberg expects a build of 93 bcf in a range of 88-98 bcf.

EIA Report

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

News & Views

Profit-taking should be a factor after blistering bull moves not supported by the fundamentals.

An Illustrated Look at Energy Market Factors

A Look at Gasoline Supply & Demand

Thirteen-week demand is now at 9.053 million bpd, down 1.77%.  Thirteen-week supply is now 9.861 million bpd, down 0.13%.  Thirteen-week implied demand is at 10.024 million bpd, down 0.77%.

A Look at Distillate Supply & Demand

Distillate demand has fallen off a cliff, and is not showing any strong signs of rebounding.

Implied demand is not as poor, but it is still weak – and still weakening.

Thirteen-week demand is now at 3.714 million bpd, down 12.09%.  Thirteen-week supply is now 4.286 million bpd, up 0.33%.  Thirteen-week implied demand is at 4.206 million bpd, down 5.10%.

A Look at Refinery Utilization

Utilization is 6.1% lower than a year ago and is 11.41% below the eight-year average.  It is 13.60% lower than the five-year, pre-Katrina average. 

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. 

Have a safe and enjoyable holiday weekend!