Prices for June 15th, 2009

Market Review for Monday           

HE US dollar completed the construction of a small head and shoulders bottom yesterday, settling just above the neckline.  That gives the dollar an upside objective to the 74.75 euro cent zone.  We apologize; many of readers thought this was a report about energy markets.  It still is.  Unfortunately, the energy markets have been hijacked, again, by currency transactions.  The future course of the US dollar currently trumps long-standing fundamental factors like inventories, refinery output, Opec and refined products demand.  The good news is that the dollar seems headed higher on the charts, and that could give the fundamentals in the oil complex a moment to recover control of price movements.  Yesterday, the stronger dollar led to lower oil prices.  The dollar’s head & shoulders bottom suggests that it could last longer.

If the dollar does strengthen, it will add to the importance of this week’s DOE report.  It was already setting up as a more important-than-normal report, after a number of questions were raised by last week’s statistics.  The potentially biggest question came from last week’s four-week gasoline demand figure, which was up 0.41%.  This was the first increase in the year-on-year figures in 2009 and going back into 2008.  But it was derived from strong gasoline demand numbers three and four weeks earlier, in anticipation of Memorial Day Weekend.  The DOE estimates demand based on the movement of gasoline from refineries to resellers.  A large amount was moved from refineries ahead of Memorial Day, but here have been signs, subsequently, that this product was used more slowly than expected, calling for a slower replacement rate.  This week’s gasoline demand figure will give us our freshest look at the picture.

Refinery utilization will give us an updated look at the supply side of the same equation.  Usually, refineries increase run rates up to Independence Day, and then maintain utilization at an elevated level until Labor Day.  This year, a combination of factors has pushed refinery utilization down, and it is running more than 8% behind the eight-year average.

Technicals

           Prices sold off yesterday, but there was nothing in the decline, yet, to indicate that this will be a new trend.  At this stage, yesterday’s decline can easily be considered a correction in a continuing bull move.  We feel that there could be more to it than that, but we will need to see more movement and no new highs for that to be the case. 

Dollars per barrel

Above:  The gas crack continued to improve yesterday as crude dropped and gasoline did not.

July crude oil now has buy-stops over $72.35, $72.63, $73.25, $76.25, $79.17, and $84.83.  Sell-stops are under $69.55, $68.43, $66.75, $65.90, $64.95, $64.65, $62.75, $62.19, $59.50, $56.55, $56.15, $55.46, $53.50, $52.55, $50.00, $48.55, $48.00, $47.25, $46.92, $46.53, & $43.62.  July heating oil has buy-stops over 184.81, 185.17, 187.10, 189.10, 192.12, 193.45, and 199.20. Sell stops are under 178.77, 177.36, 174.00, 173.50, 171.00, 167.80, 162.35, 159.45, 154.75, 153.50, 147.70, 141.30, 140.90, 137.50, 132.00, 129.50, 127.85, 123.20, and 119.00.  July RBOB has buy-stops over 206.20-206.36, 207.65, 214.00, 222.70, 228.86, 240.10, 250.40, 252.00, 265.10, and 267.85.  Sell-stops are under 200.00-200.40, 196.37, 193.43, 192.10, 189.40, 185.90, 184.84, 178.00, 167.70, 166.35, 165.00, 163.65, 162.40, 157.50, 156.60, 150.35, and 144.60. 

Football: The bulls lost 14 yards on first down yesterday, making it second and 24 to go.

Technical Support & Resistance

Jul crude oil                            Support:             $69.55-$69.65, $68.40-$68.50, $66.75-$66.85, $65.90-$66.10, $64.95-$65.10.

                                           Resistance:        $72.35-$72.63, $73.10-$73.25, $76.10-$76.25, $79.00-$79.17, $84.75-$84.83.

Jul heating oil         Support:             178.75-178.90, 177.55-177.65, 174.00-174.15, 173.50-173.70, 171.00-171.20.

                             Resistance:        184.81-185.17, 187.00-187.06, 188.90-189.10, 191.95-192.12, 193.30-193.45.

Jul Rbob                        Support:             200.40-200.60, 196.35-196.45, 193.40-193.50, 192.00-192.15, 189.40-189.60.

                                           Resistance:        206.00-206.20, 206.85-207.00, 207.55-207.63, 213.90-214.00, 222.50-222.70.

Oil Inventory Reports

    After last week’s bullish report, this week’s statistics will mean more than normal.  We need to see if the gasoline demand four-week figure (up 0.4%) was an aberration or the start of a new trend.  We need to see if refineries are done increasing utilization (they typically are by Independence Day), and we need to see if there will be any respite in crude oil i8mports, which have been well below normal for weeks now.  Another bullish report could force bears to throw in the towel.

    Distillate stocks are now 35.8 million bbls, or 31.43%, higher than a year ago.  Heating oil inventories are 15.4 mln bbls, or 62.60%, higher than they were a year ago.  Gasoline stocks are 6.1 mln bbls (dn 2.94%) lower against a year ago.  Crude oil stocks are now 59.9 million bbls, or 19.85%, higher than a year ago.  Residual stocks are 1.4 mln bbls (3.44%) lower than a year ago, jet fuel stocks are 1.8 mln bbls, (4.49%) higher than a year ago.  Utilization is 2.75% lower than a year ago and is 8.19% below the eight-year average.  It is 10.51% 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 21,654 contracts on Friday, when prices were lower.  That looks like long liquidation and would be supportive.

      Heating oil open interest grew by 1,314 contracts on Friday, when prices were lower.  That looks like new selling, which would be bearish. 

      RBOB open interest fell by 1,637 contracts on Friday, when prices were lower.  That looks like long liquidation and would be supportive. 

      Natural gas open interest fell by 8,447 contracts on Friday, when prices were lower.  That looks like long liquidation, which would be supportive.  It looks like profit-taking, which would be constructive. 

Friday’s Open Interest Changes:  

Crude 1,206,264  dn 21,654        Heat 285,526   up 1,314       RBOB 222,122  dn 1,637       Nat gas 729,616  dn 8,447   

CFTC Commitments of Traders  (for the period ended Tuesday, June 9th)   

As of June 9th:                 Long                   Short:

Crude oil                   204,490               156,607                           -contracts held by speculators:  1.31 long

                                         589,809               656,131                               held by the trade

                                         120,632               102,193                               held by small specs and hedgers.

Spreads….up 9,191 contracts   The ratio went from 1.25-to-one short to 1.31-to-one long in the last report.

   Large speculators added 4,993 long contracts and covered 3,203 shorts over the week under review.  Commercials liquidated 7,792 longs and added 1,809 shorts.  Small specs and hedgers added 5,649 longs and added 4,244 shorts.  Open interest grew by 12,041 contracts as prices rallied $1.46/barrel.  We had an increase of 52,000 contracts two weeks ago, followed by an increase of 95,773 contracts, and now 12,041 contracts.  We do seem to be running out of buying. 

   The average large speculator has 2,087 long contracts (98 accounts), or 116 more contracts on average on 2 less accounts, and 1,684 shorts (93 accounts), or an average of 2 contracts more on 2 less accounts.  Commercials held 7,761 longs (76) or 102 fewer longs on average on the same accounts, and 7,372 shorts (89), or 336 more shorts on 4 fewer accounts. Reportables held 4,150 longs (261, up 1 acct) and 4,406 shorts (250 accts, dn 8).  Average longs were up 9, shorts were up 167.

Heating oil                 41,241                  12,901                           - contracts held by speculators:  3.20 to 1 long

                                         156,361               201,622                              held by the trade.

                                           44,232                 27,311                               held by small specs and hedgers.

Spreads….dn 772 contracts.    The ratio of large speculative longs to shorts went from 2.49-to-one to 3.20-to-one in 3 weeks.

       Large speculators added 5,200 longs and covered 1,217 shorts.  Commercial accounts added 7,687 longs and added 18,232 shorts.  Small speculators and hedgers added 1,694 longs and covered 2,434 shorts.  Open interest grew by 13,809 contracts as prices rallied 0.97 cents. That looks like heavy new buying, which came from large speculators and commercials.

       The average large speculative long is holding 1,213 contracts (up 87 lots on 34 accounts, 2 more account), while the average short has 561 contracts (dn 53 lots on 23 accts, same).  The average commercial long is holding 2,482 contracts (up 230 contracts on 63 accts, dn 3 accts) compared to the average short holding of 3,102 contracts (up 365 lots on 65 accts, dn 2 accts).  The average reportable position is 1,978 long (up 85 lots on 120 accts, up 1) while the average short holding is 2,230 (up 86 lots on 114 accts, up 3).  The shorts remain in stronger hands, here.

Rbob Gasoline           73,923                 10,947                          -contracts held by speculators:  6.75 to 1 long

                                          106,225               173,418                             held by the trade.

                                            19,781                 15,564                              held by small specs and hedgers.

Spreads…up 316 contracts   The ratio of large speculative longs to shorts went from 7.62-to-one to 6.75-to-one in 2 weeks.

     Large speculative holdings grew by 2,850 longs and grew by 862 shorts over the latest week. Commercial holdings grew by 37 longs and grew by 3,100 shorts.  Small speculators and hedgers’ positions grew by 1,016 longs and fell by 59 shorts.  Open interest grew by 4,219 contracts as prices rallied 4.15 cents.  That looks like new buying, which would be supportive.  The best buying came from large speculators and then from smaller speculators. 

   The average holdings are 1,103 contracts for each large speculative long (68) and 521 for each large speculative short (25).  The average commercial long now has 1,362 contracts long (78) and 2,016 short (86). Average reportable holdings are 1,210 long (166) against 1,486 short (138).  Large speculators added three new long accounts, which increased the average holding by 10 lots, and added two new short accounts, which increased the average short by 83 contracts.  Shorts are in stronger hands.

Naturalgas              103,569               243,222                           -contracts held by speculators:  2.35 to 1 short

                                         277,029               183,172                               held by the trade.

                                           91,303                 45,507                           held by small specs and hedgers.

Spreads…dn 5,958 contracts    The ratio of large speculative shorts to longs went from 2.63-to-one to 2.35-to-one in a week.

  Large speculative holdings liquidated 18,408 longs and added 19,302 shorts over the latest week. Commercial accounts added 1,654 longs, and added 2,751 shorts, while small speculators and hedgers added 16,391 longs and added 14,400 shorts.  Open interest grew by 30,495 contracts as prices dropped $0.389/mmBtu.  That looks like new selling and is bearish.  There was almost even buying and selling from each category, and that highlights what a battle has been raging in this market.  Longs and shorts added decent numbers – on both sides – across the spectrum.  Speculators were more active than commercial accounts.

  The average large speculator has 1,400 contracts (74) while each large speculative short is holding 3,040 shorts (80).  The average commercial long now has 3,298 contracts long (84) and 2,694 short (68). Average reportable holdings are 2,716 long (229) long and 3,356 short (199).  Large speculators added seven long accounts, which increased the average long holding by 129 contracts, and added two short accounts, which brought the average down 60 contracts.  The reportable category had 73 fewer longs on average on 11 more accounts while the average reportable short held 92 less contracts with 10 more accounts.    

Natural Gas & Utility Generation

Natural gas futures advanced sharply yesterday, gaining 32 cents.  This was the fourth gain of 22 cents or more in 13 sessions.  We have had one 35-cent decline in that period, but it is clearly out-pointed by the four sessions higher, two of which were more than 41 cents.  Volume has also increased on the moves higher, with last Thursday’s 22-cent increase accompanied by 368,000 contracts changing hands.  If that was not a record, it was certainly close to being one, and it was the largest trading session this year.

Open interest increased on the rise, so the bulls also have that working for them.  Taken together, these signals all suggest that this market has seen its lows for now.  We feel that the $10.50 move lower from last July to the low at $3.15 discounted all of the bearish factors in this market.  The recent advances are telling us that the natural gas market has internalized the bearish factors and is now trading from a clean slate.  While that does not mean that we cannot have bearish factors or moves, it should mean that the surpluses against a year ago and the five-year average are done moving prices.  They pushed prices more than $10.50/mmBtu lower before losing their grip on the market.  Now, it is going to take additional increases in those surpluses, fresh declines in demand or an increase in production to drive prices below the $3.15 low.  Positive signs will push quotes up.

In cash trading yesterday, Henry Hub prices were at $3.75-$3.89, up $0.18-$0.25 (DJN).  SoCal prices were at $2.90-$3.19, up $0.32-$0.51 on the day.  El Paso Permian prices were up $0.24-$0.43 at $2.80-$3.03.  Katy prices were up $0.24-$0.25 at $3.68-$3.81.  Waha prices were up $0.32-$0.45 at $3.00-$3.16.  Transco 6 was up $0.25-$0.29 at $4.13-$4.20/mmBtu, according to Dow Jones News (DJN).

Palo Verde prices were last quoted at $27.25-$28.00/mwh.  Northeastern prices last traded at $36.00-$38.75.  Entergy was last at $33.00-$40.00.  Ercot was last at $39.00-$42.00/mwh. 

Yesterday’s advance was spurred by forecasts for the season’s first genuinely hot readings in Texas.  And, when it gets hot in Texas, it gets hotter than a number of other places.  Triple-digit readings are expected in Dallas, and this will be the first real “test” of the system this summer.  Not that “failing” is one of the options, but the first really hot weather in summer or really cold readings in winter can tell us about supplies in this market.

Demand has been lower for the last year, but a large proportion of that lost usage has been industrial usage lost.  Temperatures transcend industrial considerations, and this forecast could tell us what to expect in terms of space-cooling interest as he summer progresses.  And, if hot weather settles in for any extended duration, it could be a sign that the longer-term trend in the weather is changing.  Since early November, temperatures have trended towards the cooler side, especially in the North.  It also seems that we have a wet trend working in the Northeast right now.  While temperatures are screeching into triple digits in Texas, we are expecting an unseasonably low reading of 54 degrees in New York tomorrow.

Support is at $3.82-$3.84, $3.65-$3.68, $3.55-$3.58, $3.43-$3.47, $3.38-$3.39, $3.33-$3.34, $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 $4.18-$4.20, $4.25-$4.28, $4.33-$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 jumped yesterday on forecasts for hot temperatures in Texas.  Prices have a clean-slate, now, we believe.

Dollars per million Btu

Jun Natural Gas:          Support:        $3.65-$3.68, $3.57-$3.60, $3.43-$3.46, $3.33-$3.36, $3.25-$3.26, $3.15-$3.17.

                                                    Resistance:    $4.06-$4.07, $4.13-$4.14, $4.24-$4.26, $4.31-$4.35, $4.53-$4.56.

EIA Weekly Storage Figures

Last week’s EIA report showed a build of 106 bcf on expectations for a build of 110 bcf.  Stocks are now 568 bcf higher than a year ago, against a surplus of 546 bcf a week ago, a surplus of 524 bcf two weeks ago and a surplus of 514 bcf three weeks ago.  Stocks are now 30.29% higher than a year ago.  They are 438 bcf and 21.84% above the five-year average.

The five-year average for this week was a build of 78.4 bcf.  The eight-year build average was 86.63 bcf.  Last year, there was a build of 57 bcf. 

EIA Report

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

News & Views

The minor head & shoulders bottom in the US dollar (next page) was almost certainly the biggest feature in a number of markets yesterday.  If it follows course, we should see decent corrections in a number of commodities that may have gotten ahead of their fundamental signals.  It bears close attention, though, from here.

An Illustrated Look at Energy Market Factors

A Look at the US Dollar Versus the Euro

Dollar-Euro:  One Year Chart

Dollar-Euro:  Three-Month Bar-Chart

 The US dollar advanced yesterday, and it looks like prices have broken over the neckline of the minor head & shoulders bottom they have been working on.  This formation gives the dollar an upside objective to the 74.75 area.  There is still major support just under 70.00 euro cents, around 69.75, and a decisive breakdown below that level would be bearish.

This breakout to the upside looks bullish for the dollar.

Source:  http://www.advfn.com/p.php?pid=forexqkchart&curcode1=USD&curcode2=EUR

Recommendations for Specific Market Segments