Prices for June 17th, 2009

Market Review for Wednesday           

PTIONS on July crude oil contracts expired yesterday, and the underlying prices were all over the lot in the process.  Prices reached a new, recent low, but they then rallied into the close, presumably on short-covering by traders holding short July contracts.  Heating oil prices were higher and gasoline prices were lower yesterday.

The US dollar was lower yesterday, and that helped oil prices rally.  We noted that gasoline prices were lower, largely on the increase in gasoline inventories, but traders seem to have ignored the most bullish feature in this week’s statistics.  Four-week gasoline demand was up 1.14%, confirming last week’s foray into positive territory and showing the first genuine sign that the economy is really improving.  Even with millions not going to work, Americans are using more gas again.

We are not really sure how that happens.  Just a quick bit of thumbnail arithmetic tells us that millions are no longer commuting an average of 15 or 20 miles to work each day.  Not everyone who has lost a job drove to work.  But many must have.  So, the gasoline demand figure is telling us that those who still have jobs are driving more.  As recently as a year ago, consumers were consolidating trips and making lists of all the places they would go before they jumped into their cars.  Apparently, very few are still following that regimen.    

Four-week diesel and heating oil use is still weak.  It is 8.87% lower than it was during the same period a year ago.  The economy is having more of a lasting impact of this particular fuel use.  All together, refined products usage is now down 5.97% against the same four-week period a year ago. Two weeks ago, it was down 7.71% against the same period a year earlier.

We still have plenty of oil in storage.  Distillate stocks are now 29.5% higher than a year ago while crude oil stocks are 19.3% higher.  Only gasoline stocks are lower than a year ago – by just 1.6%.  It is not the sort of figure that one might immediately translate into the foundation for a strong bullish move, but it has been the solely bullish inventory figure for a number of weeks, now. 

Technicals

           Crude oil and heating oil prices were higher yesterday, while gasoline prices inexplicably foundered.  Heating oil prices actually settled at their highest settlement price since November 13th.   Crude oil prices posted gains, but they are nowhere near the recent market highs.      

Cents per gallon

Above:  Gasoline prices were lower yesterday, despite a bullish demand figure.

July crude oil now has buy-stops over $71.30, $72.77, $73.25, $76.25, $79.17, and $84.83.  Sell-stops are under $69.00, $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 186.75, 188.05, 189.10, 192.12, 193.45, and 199.20. Sell stops are under 180.00, 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 207.20, 211.24, 214.00, 222.70, 228.86, 240.10, 250.40, 252.00, 265.10, and 267.85.  Sell-stops are under 199.20, 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 gained six yards on third and 25 to go, making it fourth and 19 to go.

Technical Support & Resistance

Jul crude oil                          Support:             $69.00-$69.20, $68.40-$68.50, $66.75-$66.85, $65.90-$66.10, $64.95-$65.10.

                                           Resistance:        $71.15-$71.30, $72.63-$72.77, $73.10-$73.25, $76.10-$76.25, $79.00-$79.17.

Jul heating oil       Support:             180.00-180.15, 178.75-178.90, 177.55-177.65, 174.00-174.15, 173.50-173.70.

                             Resistance:        187.00-187.06, 187.90-188.05, 188.90-189.10, 191.95-192.12, 193.30-193.45.

Jul Rbob                       Support:             199.20-199.40, 196.35-196.45, 193.40-193.50, 192.00-192.15, 189.40-189.55.

                                           Resistance:        207.55-207.63, 211.10-211.24, 213.90-214.00, 217.25-217.50, 222.50-222.70.

Oil Inventory Reports

    This week’s DOE report showed a much bigger build in gasoline inventories than had been expected, and it showed a larger draw in crude stocks.  Distillate stocks had a build in line with this week’s API report, so was more or less expected.  The DOE showed utilization rates steady, compared to the API report, which showed a decline.  The most important figure was the four-week gasoline demand figure, which is now up 1.14% against the same period a year ago.

    Distillate stocks are now 34.2 million bbls, or 29.53%, higher than a year ago.  Heating oil inventories are 15.1 mln bbls, or 59.21%, higher than they were a year ago.  Gasoline stocks are 3.3 mln bbls (dn 1.58%) lower against a year ago.  Crude oil stocks are now 57.9 million bbls, or 19.31%, higher than a year ago.  Residual stocks are 3.1 mln bbls (7.58%) lower than a year ago, jet fuel stocks are 1.8 mln bbls, (4.50%) higher than a year ago.  Utilization is 3.40% lower than a year ago and is 7.88% below the eight-year average.  It is 10.10% 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 9,280 contracts on Tuesday, when prices were lower.  That looks like long liquidation and is theoretically supportive.

      Heating oil open interest grew by 691 contracts on Tuesday, when prices were higher.  That looks like light, new buying, which would be supportive. 

      RBOB open interest rose by 1,731 contracts on Tuesday, when prices were higher.  That looks like new buying, which would be supportive. 

      Natural gas open interest fell by 698 contracts on Tuesday, when prices were lower.  That looks like long liquidation, which would be supportive.

Tuesday’s Open Interest Changes:  

Crude 1,198,182  dn 9,280        Heat 286,992   up 691       RBOB 227,322  up 1,731       Nat gas 720,428  dn 698            

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 rallied more than 12 cents/mmBtu yesterday.  We believe that part of yesterday’s strength came from the general reassessment of this market.  That seems to have come on the bullish side.  Part of t, though, seems to have come strictly from the weather forecast, which is predicting hotter weather in the Midwest.  The National Weather Service is calling for hotter readings in the Midwest during the period from June 21st to June 29th, according to Dow Jones.  The assumption is that hot temperatures will stimulate stronger demand.

According to Dow Jones, a build of 104 bcf is expected in this week’s EIA underground storage report.  That would be well above the five-year average seen on similar Friday’s of 78.4 bcf.  The eight-year average for weeks ended on a similar Friday is 86.63 bcf.  The DOE works out averages to the date.  Any way one cuts it, though, a build of more than 100 bcf would be bearish in the grander scheme of things because it would increase the surpluses year on year and in comparison with the five-year average.  Of course, the majority of traders will compare today’s build to expectations.  And that gives the bulls a much better chance of seeing prices move higher.  We still feel that prices are trying to move higher, anyway, so today’s EIA report will give us a good opportunity to see what kind of strength the report can countenance or generate.

In cash trading yesterday, Henry Hub prices were at $3.92-$4.06, down $0.14-$0.17 (DJN).  SoCal prices were at $3.25-$3.45, up $0.01-$0.15 on the day.  El Paso Permian prices were down $0.04-$0.07 at $3.24-$3.32.  Katy prices were down $0.14-$0.18 at $3.87-$3.99.  Waha prices were down $0.04-$0.09 at $3.35-$3.43.  Transco 6 was down $0.16-$0.19 at $4.29-$4.36/mmBtu, according to Dow Jones News (DJN).

Palo Verde prices were last quoted at $31.75-$34.50/mwh.  Northeastern prices last traded at $31.00-$38.75.  Entergy was last at $39.50-$40.50.  Ercot was last at $46.00-$47.00/mwh. 

Today’s EIA underground storage report will be scrutinized by a number of market observers and participants in an attempt to uncover a variety of factors.  A fairly large build is anticipated, but it takes into account primarily the weather and expectations of consumption.  These are expected to contribute to a decent increase in storage levels. 

Dow Jones makes a good point, though, in yesterday’s market roundup.  Since September, rig counts have been falling, and they are now roughly half the level seen nine months ago.  Many market observers are now trying to handicap exactly when these cutbacks in drilling operations will start to make themselves felt in terms of daily production.  There are a number of elements making this process difficult, first, and probably premature, second.  We do not believe that the effect will be felt, yet.  Once it starts, though, it could become a major factor rapidly, we would imagine.    

Support is at $4.03-$4.06, $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 $4.38-$4.39, $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 were higher again yesterday, which seems to suggest that the trend is now higher.

Dollars per million Btu

Jun Natural Gas:          Support:        $4.03-$4.06, $3.82-$3.84, $3.65-$3.68, $3.57-$3.60, $3.43-$3.46, $3.33-$3.36.

                                                    Resistance:    $4.27-$4.29, $4.38-$4.39, $4.06-$4.07, $4.13-$4.14, $4.24-$4.26, $4.31-$4.35.

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.  Dow Jones is calling for a build of 104 bcf.

EIA Report

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

News & Views

Prices responded to a number of factors yesterday, but the one factor that could have been a game-changer received very little attention – the increase in gasoline demand against a year in the four-week averages.  Funny thing, so much of the advance from March was predicated on the likelihood of an increase in demand in the future that this factor has already been discounted, it seems.

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 sold off yesterday, and prices need to get back above Monday’s high to verify the head & shoulders bottom formation.  We still have an 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 bulls need to prove they are still in control.

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

A Look at Gasoline Supply & Demand     

Thirteen-week demand is at 9.123 million bpd, down 1.70% against last year.  Thirteen-week supply is at 9.896 mln bpd, down 0.85%.  Thirteen-week implied demand is at 10.014 mln bpd, down 2.21%.

A Look at Distillate Supply & Demand

Distillate demand is threatening again to drop through the bottom of our chart.  Where other indicators suggest recovery, distillate demand suggests a worsening economy, not a better one.

Thirteen-week demand is at 3.621 million bpd, down 13.28% against last year.  Thirteen-week supply is at 4.215 mln bpd, down 5.05%.  Thirteen-week implied demand is at 4.166 mln bpd, down 5.42%.

A Look at Refinery Utilization

Utilization is 3.40% lower than a year ago and is 7.88% below the eight-year average.  It is 10.10% lower than the five-year, pre-Katrina average. 

Recommendations for Specific Market Segments