Prices for June 29th, 2009

Market Review for Monday                   

T seems like we have seen this before.  It was just about a year ago that large numbers of traders and observers were questioning the market activity, with the US dollar seen as the over-riding market factor.  Despite signs that demand might have trouble rebounding soon, and little leadership offered by either the dollar or equities, traders seized on relatively minor factors to push quotes higher yesterday.  It does now seem that the buy-stops accumulating over $73.24 are acting as a magnet for prices right now.  The most important of these factors was yet another attack by MEND on Shell’s Nigerian output.  This group has to be long crude contracts and short Shell shares.  Despite an outreached olive branch by the Nigerian government, which offered a ceasefire, MEND continued to target international oil facilities instead of government troops.

While MEND was complicating the near-term picture for crude oil that is not desperately needed right now, the International Energy Agency reduced its long-term estimate of crude oil consumption, predicting that the world will use 87.9 million bpd in 2013, a figure 3.35 million bpd beneath its last estimate that far ahead.  Of course, a reappraisal of that size begs questions of its own, and the IEA admitted that a supply crunch could come sooner if the world economy recovers more quickly than it now projects, Dow Jones said yesterday. 

In another sign that supply and demand have been relegated to cocktail conversation in the actual movement of oil prices, Algerian Oil Minister Chakib Khelil lamented the stored accumulation of 62 days of forward supply needs, suggesting that Opec would be better served by inventories covering 10 days less.  We can see it in the crude oil import figures, which have recently been at their lowest levels in years.  Even with much lower imports, refiners are struggling to keep crude oil inventories from building. 

There is plenty of crude and reduced demand for imports.  Refineries are running at levels more than 6% lower than the eight-year average for this time of year, and yet distillate stocks are approaching multi-year highs, and consumption is falling off our charts.  Only gasoline demand and stocks are near levels seen a year ago.  If all the buyers of oil suddenly realize that its primary function is as a feedstock for refineries to process into products, the dance could end.

Technicals

           Crude oil and gasoline prices broke above recent important resistance levels, and they now look poised to move higher to test their highs for the current moves.  Heating oil is still in its range between 170.72 and 180.60.  Gasoline prices broke above 193.84, but did not settle above that figure.  The bulls have the initiative.

Dollars per barrel

Above:  Crude oil prices seem to be on course to test their recent highs and they could trigger buy-stops over $73.23. 

August crude oil now has buy-stops over $71.92, $72.35, $72.77, $73.25, $76.25, $79.17, and $84.83.  Sell-stops are under $68.06, $66.35, $65.90, $64.95, $64.65, $62.75, $62.19, $59.50, $56.55, $56.15, and $55.46.  July heating oil has buy-stops over 180.00, 180.60, 185.90, 187.45, 188.05, 189.10, 192.12, 193.45, and 199.20. Sell stops are under 171.50, 170.70, 167.80, 162.35, 159.45, 154.75, 153.50, 147.70, 141.30, 140.90, 137.50, 132.00, and 129.50.  July RBOB has buy-stops over 195.95, 203.75, 204.36, 207.20, 211.24, 214.00, 222.70, 228.86, 240.10, 250.40, 252.00, and 265.10.  Sell-stops are under 186.75, 185.93, 183.65, 182.65, 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 23 yards yesterday on first down and that gives them another first down. 

Technical Support & Resistance

Aug crude oil                        Support:             $68.00-$68.10, $66.35-$66.50, $65.90-$66.10, $64.95-$65.10, $64.65-$64.75.

                                           Resistance:        $71.80-$71.92, $72.10-$72.35, $72.63-$72.77, $73.10-$73.25, $76.10-$76.25.

Jul heating oil       Support:             171.50-171.65, 170.70-171.00, 167.80-168.00, 162.35-162.45, 159.45-159.60.

                             Resistance:        179.75-180.00, 180.45-180.60, 185.70-185.90, 187.30-187.45, 187.90-188.05.

Jul Rbob                       Support:             186.75-187.00, 185.90-186.10, 183.65-183.90, 182.65-182.80, 178.00-178.20.

                                           Resistance:        193.70-193.85, 195.85-195.95, 203.60-203.75, 204.20-204.36, 207.00-207.20.

Oil Inventory Reports

    Refinery utilization more often than not peaks on or around Independence Day, with Labor Day being the second most frequent time to see a high during any given year.  As a result, we almost have to expect utilization to increase, as it has in six of the last eight years.  Because of this tendency, crude oil imports have typically increased, refined products stocks have built and crude oil inventories have declined.  For more, see page 6.

    Distillate stocks are now 34.3 million bbls, or 29.12%, higher than a year ago.  Heating oil inventories are 14.0 mln bbls, or 52.83%, higher than they were a year ago.  Gasoline stocks are 0.1 mln bbls (up 0.05%) higher against a year ago.  Crude oil stocks are now 55.9 million bbls, or 18.76%, higher than a year ago.  Residual stocks are 3.5 mln bbls (8.50%) lower than a year ago, jet fuel stocks are 1.8 mln bbls, (4.51%) higher than a year ago.  Utilization is 1.50% lower than a year ago and is 6.10% below the eight-year average.  It is 7.70% 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 24,272 contracts on Friday, when prices dropped.  That looks like heavy, long liquidation, which would be supportive.    

      Heating oil open interest fell by 1,890 contracts on Friday, when prices were lower.  That looks like long liquidation and is constructive in theory. 

      RBOB open interest fell by 7,228 contracts on Friday, when prices were lower.  That looks like good long liquidation and is supportive. 

      Natural gas open interest fell by 5,116 contracts on Friday, when prices were higher.  That looks like short-covering, which would be bearish. 

Friday’s Open Interest Changes:  

Crude 1,127,201  dn 24,272        Heat 289,271   dn 1,890       RBOB 206,549  dn 7,228       Nat gas 698,215  dn 5,116   

CFTC Commitments of Traders  (for the period ended Tuesday, June 23rd)   

As of June 23rd:                 Long                   Short:

Crude oil                   201,463               162,093                           -contracts held by speculators:  1.24 long

                                         572,646               624,003                               held by the trade

                                           80,975                 68,988                               held by small specs and hedgers.

Spreads….dn 24,048 contracts   The ratio went from 1.15-to-one short to 1.24-to-one long in the last report.

   Large speculators added 101 new long contracts and covered 12,839 shorts over the week under review.  Commercials liquidated 41,691 longs and covered 36,675 shorts.  Small specs and hedgers liquidated 21,947 longs and covered 14,023 shorts.  Open interest fell by 87,585 contracts as prices dropped $1.92/barrel.  We had increases of 52,000 contracts, 95,773 contracts, and then 12,041 contracts, and now 87,585 were taken off.  Commercials and small specs got out of the most.

   The average large speculator has 2,398 long contracts (84 accounts), or 209 more contracts on average on 8 less accounts, and 1,671 shorts (97 accounts), or an average of 96 contracts less on 2 less accounts.  Commercials held 7,635 longs (75) or 141 less longs on average on 4 less accounts, and 6,857 shorts (91), or 825 less shorts on 5 more accounts. Reportables held 4,255 longs (242, dn 16 accts) and 4,358 shorts (239 accts, dn 5).  Average longs were up 10, shorts were down 212.

Heating oil                 39,163                   7,816                           - contracts held by speculators:  5.01 to 1 long

                                         162,875               209,371                              held by the trade.

                                           45,217                 30,068                               held by small specs and hedgers.

Spreads….dn 821 contracts.    The ratio of large speculative longs to shorts went from 2.49-to-one to 5.01-to-one in 5 weeks.

       Large speculators liquidated 982 longs and covered 1,953 shorts.  Commercial accounts added 1,753 longs and added 2,767 shorts.  Small speculators and hedgers added 645 longs and added 602 shorts.  Open interest grew by 595 contracts as prices dropped 5.60 cents. That looks like light, new selling and is bearish.

       The average large speculative long is holding 1,004 contracts (dn 111 lots on 39 accounts, 3 more account), while the average short has 521 contracts (up 33 lots on 15 accts, dn 5).  The average commercial long is holding 2,468 contracts (dn 89 contracts on 66 accts, up 3) compared to the average short holding of 3,221 contracts (dn 7 lots on 65 accts, up 1 acct).  The average reportable position is 1,924 long (dn 47 lots on 126 accts, up 3) while the average short holding is 2,384 (up 43 lots on 108 accts, dn 3).  The shorts increased their average reportable holdings, on fewer accounts, and they have deeper pockets.

Rbob Gasoline           65,559                 10,312                          -contracts held by speculators:  6.36 to 1 long

                                          115,730               175,147                             held by the trade.

                                            18,658                 14,488                              held by small specs and hedgers.

Spreads…dn 1,904 contracts   The ratio of large speculative longs to shorts went from 7.29-to-one to 6.36-to-one in 1 week.

     Large speculative holdings fell by 6,749 longs and grew by 395 shorts over the latest week. Commercial holdings fell by 1,169 longs and fell by 10,367 shorts.  Small speculators and hedgers’ positions fell by 2,262 longs and fell by 208 shorts.  Open interest fell by 12,084 contracts as prices dropped 17.79 cents.  That looks like long liquidation, which we saw in all three major categories, and it is considered supportive. 

   The average holdings are 1,057 contracts for each large speculative long (62) and 607 for each large speculative short (17).  The average commercial long now has 1,523 contracts long (76) and 1,968 short (89). Average reportable holdings are 1,268 long (155) against 1,487 short (135).  Large speculators closed three long accounts, which decreased the average holding by 55 lots, and closed four short accounts, which increased the average short by 135 contracts.  Shorts are still in stronger hands.

Naturalgas                75,220               229,028                           -contracts held by speculators:  3.04 to 1 short

                                         295,530               187,362                               held by the trade.

                                           85,801                 40,161                           held by small specs and hedgers.

Spreads…dn 9,269 contracts    The ratio of large speculative shorts to longs went from 2.35-to-one to 3.04-to-one in 2 weeks.

  Large speculative holdings liquidated 5,137 longs and covered 4,692 shorts over the latest week. Commercial accounts added 647 longs, and covered 2,569 shorts, while small speculators and hedgers liquidated 7,374 longs and covered 4,603 shorts.  Open interest fell by 21,133 contracts as prices dropped $0.250/mmBtu.  That looks like long liquidation and is supportive.  Large and small speculators were liquidating positions.  They also were covering shorts.  Commercials bought a couple hundred new longs and covering shorts.  Traders were getting out of existing positions, which makes activity less likely to continue. 

  The average large speculator has 977 contracts (77) while each large speculative short is holding 2,759 shorts (83).  The average commercial long now has 3,560 contracts long (83) and 2,839 short (66). Average reportable holdings are 2,667 long (230) long and 3,329 short (198).  Large speculators kept the same number of long accounts and reduced holdings by an average of 67 contracts, and cut out one short account, reducing the average short by 23.  Commercials added one short account and increased average long holdings by 7 contracts and reduced average shorts by 23 contracts.    

Natural Gas & Utility Generation

Natural gas futures returned to the sell side yesterday as traders returned their attention to the heavy overhang of inventories and the lack of industrial demand.  Traders were responding to fresh weather forecasts predicting milder temperatures in the Northeast and Midwest through the first week of July, and that removed just about the only source of potential buying on the immediate horizon. 

As has been the case more often than not recently, yesterday’s most visible ‘factor’ was a lack of response to moves in the oil complex.  Although natural gas prices can move in tandem with oil prices, they have been following widely divergent paths in recent weeks.  Even though the logic behind advances in oil prices could be equally applied to natural gas prices, it has not been lately.  In fact, having the two markets move together has been more the exception than the rule.

Market observers were also talking about the deterioration in an incipient storm system that developed in the Atlantic Ocean but fell apart on contact with the Yucatan Peninsula in Mexico, according to Dow Jones, yesterday.  While we have had important Atlantic storms in June, before, it is far more typical to see tropical storms and hurricanes threaten the US Gulf later in the season, in July, August and September.

In cash trading yesterday, Henry Hub prices were at $3.75-$4.00, up $0.14 and down $0.02 (DJN).  SoCal prices were at $3.38-$3.62, up $0.31-$0.34 on the day.  El Paso Permian prices were up $0.35-$0.35 at $3.50-$3.60.  Katy prices were up $0.02-$0.10 at $3.71-$3.91.  Waha prices were up $0.15-$0.20 at $3.55-$3.60.  Transco 6 was up $0.02-$0.02 at $4.07-$4.16/mmBtu, according to Dow Jones News (DJN).

Palo Verde prices were last quoted at $35.00-$37.50/mwh.  Northeastern prices last traded at $30.00-$39.00.  Entergy was last at $32.00-$33.00.  Ercot was last at $70.00-$90.00/mwh. 

Prices still have major resistance overhead at $4.105, $4.253 and $4.387, and the second quarter average price is at $3.812.  For the year-to-date, the average is $4.137.  Prices seem to have set up shop between the two figures. 

Demand is poor, storage is full and it’s injection season, and the market will hinge upon major weather events like extended or sustained heat waves and tropical storm activity.  In the absence of those features, prices seem likely to drift from one weekly EIA underground storage report to the next. 

Larger traders and index funds seem to have passed this market by.  Since they seemingly have no regard for supply and demand factors, we cannot say that it starts there.  If they did, heating oil prices would be dramatically lower.  For reasons known only to them, the funds have ignored this market.  That would seem to work against volatility.

By tomorrow, traders will shift their focus to this week’s EIA underground storage report.  Another injection below expectations could help boost quotes before the markets close for the Independence Day holiday.    

Support is at $3.92-$3.93, $3.77-$3.80, $3.71-$3.72, $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, and $2.64-$2.66.  Resistance is at $4.08-$4.09, $4.15-$4.16, $4.31-$4.33, $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. 

Natural gas prices ended near the lower end of yesterday’s range.

Dollars per million Btu

Jun Natural Gas:          Support:         $3.92-$3.93, $3.77-$3.80, $3.71-$3.72, $3.65-$3.68, $3.57-$3.60, $3.43-$3.46.

                                                    Resistance:    $4.08-$4.09, $4.15-$4.16, $4.31-$4.33, $4.38-$4.39, $4.06-$4.07, $4.13-$4.14.

EIA Weekly Storage Figures

Last week’s EIA report showed a build of 114 bcf on expectations for a build of 104 bcf.  Stocks are now 631 bcf higher than a year ago, against a surplus of 622 bcf a week ago, a surplus of 568 bcf two weeks ago and a surplus of 546 bcf three weeks ago.  Stocks are now 31.23% higher than a year ago.  They are 482 bcf and 22.22% above the five-year average.

The five-year average for this week was a build of 88.4 bcf.  The eight-year build average was 89.12 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

Oil prices seem to have reached a blow-off phase here and the shorts are throwing in the towels around the world.  We would like to see in this signs that the market is trying to build a top, but factors like equities and the dollar are independent of oil supply and demand.  The fundamentals have been rudely discarded, for the most part.

An Illustrated Look at Energy Market Factors

A Look at the US Dollar Versus the Euro

Dollar-Euro:  One Year Chart

Dollar-Euro (dollar in euro cents):  Three-Month Bar-Chart  The dollar was weaker yesterday, but it remains inside its broader consolidation between @69.75 and @72.75 euro cents per dollar.  A breakdown under 69.75 euro cents would be bearish, but a break above the recent high, around 72.50-72.75 euro cents would suggest that the dollar can go higher and confirm that a bottom has been built. 

This chart looks heavy and weak tonight, but a steep rally would change that pretty quickly. 

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

A Look at Long-Term Charts

We are starting to feel that we may see longer-term tests of last year’s lows. 

That would have somewhat dire implications for economic numbers, although lower energy prices would help the consumer pull us out of this recession.

Recommendations for Specific Market Segments

Please note:  We will not publish reports this week on either Thursday or Friday mornings.  We will have an expanded report out on Monday, a week from today. 

We wish all of our readers a healthy, happy, safe and enjoyable Independence Day. Thank you.