Prices for August 14th, 2009

Market Review for Friday & over the Weekend     

rally in the US dollar combined with bearish economic news and a selloff in equities to scare energy bulls out of their long positions.  It was another of those “perfect storms,” or contract bridge games where the winning pair wins a number of hands, “no trump.”  No doubt about it, the bears are holding the high cards in the non-trump suits.  For too long, the bulls have been bidding with plentiful trump cards – always playing for the “dummy.”  If someone is holding trump cards, he or she doesn’t need to understand oil fundamentals. 

On Friday, that was not the game being played.  The dollar rallied and equities slumped, and that gave fundamental traders a decisive leg up.  The end result was a big move lower.  On Friday, consumer confidence fell from 66.0 in June to 63.2 in July.  This followed disappointing reports on unemployment and on retail sales on Thursday.  A little too much risk appetite left traders resorting to the ancient Roman ‘solution’ on Friday.  I guess we need a new term, and ‘risk regurgitation’ would seem to fit the bill.  And investors need to rethink using commodities as a “balancing asset” against equities in their portfolios.

Prices weakened on the combination of poor consumer confidence and weaker equities.  And as the selling picked up, technical selling came in.  This really gained momentum when crude oil prices broke beneath $68.80-$68.85, and crude oil settled beneath that level.  Gasoline broke beneath and settled under its major support at 198.84.  Only heating oil failed to break below its major support, at 182.56.  It came reasonably close, but could not break beneath that level.  The bears need to confirm the breakdown today. 

It was also noted on Friday that the US balance of trade has swung dramatically towards a US surplus.  We do not have a balance of trade surplus – yet.  But, if we take out oil and our trade with China, there is a small surplus, according to Capital Economics (US Economics Weekly).  This emerging surplus-like improvement in our trade balance supports the US dollar. 

Over the weekend, tropical storms Ana and Bill formed and started moving west.  On Saturday, Tropical Storm Ana was 800 miles east-southeast of the Leeward Islands.  It is expected to be near the islands today.  Bill formed Saturday in the eastern Atlantic.  Claudette is about to hit the Florida panhandle.

Technicals

           Oil prices broke down on Friday, and they seem to have made up their minds that the next big move is lower.  Crude oil and gasoline broke down below important support at $68.84 and 198.84.  Heating oil still has support at 182.56, which is the lower end of the gap it formed recently.  

Dollars per barrel

Above:  Crude oil prices unexpectedly plunged through support on Friday.  This leaves us with a long-term double top.

September crude oil now has buy-stops over $71.60, $72.21, $72.85, $73.38, $76.25, $79.17, $84.83, $85.13, $89.82, and $90.99.  Sell-stops are under $67.10, $64.95, $62.70, $62.00-$62.09, $61.00, $60.00-$60.25, $59.65, $58.30, $56.55, $56.15, $55.46, $54.65, and $49.90.  September heating oil has buy-stops over 193.30, 194.65, 196.21, 197.40, 199.20, 209.40, 215.00, 221.13, 225.80, 227.05, 229.08, and 242.00. Sell stops are under 183.15, 182.55, 171.65, 165.80, 163.75, 157.45, 155.85, 151.65, 148.70, 147.70, 141.30, 140.90, 137.50, 132.00, and 129.50.  September RBOB has buy-stops over 204.75, 208.55, 211.24, 214.00, 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 192.00, 184.50, 182.60, 176.75, 175.00-175.15, 169.70, 168.00, 165.25, and 160.10. 

Football: The bears gained 30 yards on Friday, on third and 21, making it first and 10 for the bears. 

Technical Support & Resistance

Sep crude oil                          Support:             $67.10-$67.25, $64.95-$65.10, $62.70-$62.85, $62.00-$62.10, $61.00-$61.20.

                                           Resistance:        $71.50-$71.60, $72.10-$72.21, $72.70-$72.84, $73.25-$73.38, $76.10-$76.25.

Sep heating oil       Support:             183.15-183.30, 182.55-182.70, 171.65-171.80, 165.80-166.00, 163.75-164.00.

                             Resistance:        193.15-193.30, 194.50-194.65, 196.10-196.21, 197.30-197.40, 199.00-199.20.

Sep Rbob                       Support:             192.00-192.20, 184.50-184.70, 182.60-182.75, 176.75-177.00, 175.00-175.15.

                                           Resistance:        204.60-204.75, 206.60-206.76, 207.00-207.20, 207.75-207.85, 208.31-208.55.

Oil Inventory Reports

    Refinery utilization was up in four years and down in four years for this week, although it was 0.09% higher than the previous week, averaging 92.70%, up from 92.61% the previous week.  Distillate stocks have been higher in seven of the last eight years, for an average increase of 1.010 million barrels.  Gasoline stocks have been lower in six of the last eight years, for an average drawdown of 2.762 mln bbls.  Crude oil stocks were mixed, with builds in four years and draws in four years, for an average build of 0.861 mln bbls.  Crude oil imports have increased by an average of 517,000 bpd over the last five years.

     Distillate stocks are now 31.0 million bbls, or 23.61%, higher than a year ago.  Heating oil inventories are 13.4 mln bbls, or 38.95%, higher than they were a year ago.  Gasoline stocks are 7.3 mln bbls (up 3.57%) higher against a year ago.  Crude oil stocks are now 55.4 million bbls, or 18.68%, higher than a year ago.  Residual stocks are 2.5 mln bbls (6.74%) lower than a year ago, jet fuel stocks are 5.1 mln bbls, (12.35%) higher than a year ago.  Utilization is 2.40% lower than a year ago and is 9.11% below the eight-year average.  It is 10.84% 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 grew by 15,963 contracts on Thursday, when prices were higher.  That looks like new buying, which would be constructive. 

      Heating oil open interest grew by 4,479 contracts on Thursday, when prices were higher.  That looks like new buying, which would be supportive.

      RBOB open interest rose by 9,573 contracts on Thursday, when prices dropped. That looks like new selling and is bearish.

      Natural gas open interest fell by 86 on Thursday, when prices dropped.  This looks like net long liquidation, which should be supportive. 

Wednesday’s Open Interest Changes:  

Crude 1,196,754  up 15,963        Heat 315,030   up 4,479       RBOB 231,966  up 4,573       Nat gas 749,337  dn 86         

CFTC Commitments of Traders  (for the period ended Tuesday, Aug 11th)   

 As of Aug 11th:                 Long                   Short:

Crude oil                   219,556               185,411                           -contracts held by speculators:  1.18 long

                                         621,573               658,316                               held by the trade

                                            87,885                75,287                               held by small specs and hedgers.

Spreads….up 5,882 contracts   The ratio stayed at 1.18-to-one long over the latest week.

   Large speculators liquidated 5,882 long contracts and added 1,786 shorts over the week under review.  Commercials liquidated 27,043 longs and covered 34,008 shorts.  Small specs and hedgers liquidated 3,770 new longs and covered 3,873 shorts.  Open interest fell by 30,213 contracts as prices dropped $1.97/barrel.  That looks like long liquidation, which should be supportive.  All three categories were selling, liquidating longs.  Small traders and commercials covered shorts.

   The average large speculator has 2,060 long contracts (104 accounts), or 92 less contracts on average on 2 more accounts, and 2,152 shorts (87 accounts), or an average of 92 contracts more on 3 fewer accounts.  Commercials held 6,913 longs (86) or 487 less longs on average on 2 more accounts, and 6,970 shorts (91), or 216 less shorts on 2 less accounts. Reportables held 3,929 longs (277, dn 2 accts) and 4,369 shorts (252 accts, dn 4). There were 2 fewer long and 4 fewer short accounts.

Heating oil                 52,089                 14,416                           - contracts held by speculators:  3.61 to 1 long

                                         175,906               226,401                              held by the trade.

                                           39,286                 26,464                               held by small specs and hedgers.

Spreads….up 727 contracts.    The ratio of large speculative longs to shorts went from 3.62-to-one to 3.61-to-one in 1 week.

       Large speculators added 4,126 longs and added 1,177 shorts.  Commercial accounts added 1,863 longs and added 8,416 shorts.  Small speculators and hedgers added 736 longs and covered 2,868 shorts.  Open interest grew by 7,452 contracts as prices rallied 1.03 cents.  That looks like net new buying and is supportive.  All three categories were buying, but the best buying came from large speculators.  Small specs and hedgers were covering shorts while commercials sold short. 

       The average large speculative long is holding 1,628 contracts (up 129 lots on 32 accounts, same accts), while the average short has 627 contracts (up 25 lots on 22 accts, up 1).  The average commercial long is holding 2,706 contracts (up 28 contracts on 65 accts, same) compared to the average short holding of 3,281 contracts (up 122 lots on 69 accts, same).  The average reportable position is 2,185 long (dn 73 lots on 122 accts, dn 1) while the average short holding is 2,348 (up 9 lots on 119 accts, up 4).  One long account was closed and four new ones were opened over the week being reviewed.

Rbob Gasoline            68,670                  9,389                          -contracts held by speculators:  7.31 to 1 long

                                           112,552              178,432                             held by the trade.

                                             16,749                10,150                              held by small specs and hedgers.

Spreads…up 472 contracts   The ratio of large speculative longs to shorts went from 8.17-to-one to 7.31-to-one in 1 week.

     Large speculative holdings grew by 4,226 longs and grew by 1,504 shorts over the latest week. Commercial holdings fell by 572 longs and grew by 4,154 shorts.  Small speculators and hedgers’ positions grew by 351 longs and fell by 1,653 shorts.  Open interest grew by 4,477 contracts as prices dropped 1.35 cents, which looks like new selling and would be bearish.  The ratio of longs to shorts dropped, on the new selling.  There was new buying by large speculators, but commercials and large speculators sold more than was bought. 

   The average holdings are 1,184 contracts for each large speculative long (58) and 427 for each large speculative short (22).  The average commercial long now has 1,563 contracts long (72) and 1,919 short (93). Average reportable holdings are 1,325 long (150) against 1,478 short (139).  There was one less reportable long account and the same number of short accounts, increasing average longs by 36 contracts and increasing average shorts by 44 contracts.

Naturalgas                94,803               248,823                           -contracts held by speculators:  2.62 to 1 short

                                         294,170               187,708                               held by the trade.

                                           87,390                 39,832                           held by small specs and hedgers.

Spreads…up 12,850 contracts    The ratio of large speculative shorts to longs went from 2.92-to-one to 2.62-to-one in 1 week.

  Large speculative holdings were up by 10,976 longs and were up by 3,776 shorts over the latest week. Commercial accounts liquidated 9,807 longs, and covered 1,329 shorts, while small speculators and hedgers added 6,538 new longs and added 5,260 shorts.  Open interest rose by 20,557 contracts as prices fell 46.0 cents.  That looks like net, new selling, which explains the sudden extreme weakness in this market.  The biggest ump in open interest came from spreads, and we do not know if they are intra-market (both legs natural gas) or inter-market (one leg gas, one leg something else).  Small traders were the best sellers.

  The average large speculator has 1,156 contracts (82) while each large speculative short is holding 2,704 shorts (92).  The average commercial long now has 3,421 contracts long (86) and 2,844 short (66). Average reportable holdings are 2,771 long (233) long and 3,285 short (211).  Large speculators kept the same number of long accounts, which increased by 134 contracts, and they added four new short accounts, which cut the average holding by 81 contracts.  The reportable category liquidated 2 long accounts and added 6 short accounts, adding to average long holdings by 93, and cutting shorts by 22 contracts.

Natural Gas & Utility Generation

Natural gas futures were down nearly a dime on Friday, as traders sold futures lower in sympathy with plunging oil prices and weaker equities levels.  In the process, natural gas prices fell beneath the low reached on July 13, when prices touched $3.225.  We thought we had seen the low for a very long time later that week, but the bears have been working overtime to press quotes lower over the last seven trading days.  The buying has completely dried up. 

It is clear, now, that the bears are going to try to press quotes beneath the major low at $3.15, and that could even lead to the possibility of a two-dollar-handle.  We have to believe that every end-user in the country will be thrilled to lock in lower prices as far out as they exist – although it is just as clear that the decline will be limited to the front month.  December prices, only three months after the spot September prices, are a solid $2.00 higher.  The only companies that will be able to profit from this decline are those with the ability to store the physical material.  Any who can probably already have bought nearby deliveries and sold it in December or later. 

While there is plenty of gas in storage, already, we have to believe that most of it was already discounted as prices fell from $13.69 a year ago to $3.15 and then back to $3.225 in July.  Something had to be behind those price declines.  The recovery in prices looked like the market had figured it out.  The big decline from $13.69 was because of poor demand and heavy storage amounts.  It was time to look ahead.  The last seven days has taken that and stood it on its head.  Because we feel so much of these bearish fundamentals had been discounted already, we believe that this is largely the work of traders who want prices to fall to lower levels, presumably to buy them there.  That may be hard to prove, but it does make sense.

In cash trading on Friday, Henry Hub prices were at $3.15-$3.24, down $0.13-$0.16 on the day (DJN).  SoCal prices were at $3.09-$3.19, down $0.09-$0.11 on the day.  El Paso Permian prices were down $0.15-$0.15 at $2.99-$3.07.  Katy prices were down $0.14-$0.15 at $3.08-$3.15.  Waha prices were down $0.10-$0.19 at $2.98-$3.15.  Transco 6 was down $0.09-$0.10 at $3.45-$3.55/mmBtu, according to Dow Jones News (DJN).

Palo Verde prices were last quoted at $31.25-$37.25/mwh.  Northeastern prices last traded at $32.00-$53.00.  Entergy was last at $33.50-$34.75.  Ercot was last at $36.00-$36.25/mwh.

This is setting up as a critical week.  The bears have the market in their grasp, and it is just a matter of time before they push quotes below $3.15 and possibly even below $3.00.  Only an intense amount of buying and short-covering can prevent this from happening.  At the very least, the bears are going to give it their best effort.  The bulls do not seem to be in a very strong position to halt this, but a little bit of concentrated buying could trigger massive amounts of short-covering.  That is the bulls’ best hope this week.  At some number, buying will return, we should remember.

Support is at $3.22-$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 $3.59-$3.61, $3.73-$3.77, $3.85-$3.86, $4.09-$4.11, $4.15-$4.16, $4.24-$4.28, $4.31-$4.33, $4.37-$4.42, $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 were lower for a seventh straight day, on Friday.

Dollars per million Btu

Sep Natural Gas:          Support:         $3.22-$3.26, $3.15-$3.17, $3.10-$3.14, $2.88-$2.91, $2.83-$2.84, $2.74-$2.75.

                                                    Resistance:     $3.40-$3.41, $3.59-$3.61, $3.73-$3.77, $3.85-$3.86, $4.09-$4.11, $4.15-$4.16.

EIA Weekly Storage Figures

Last week’s EIA report showed a build of 63 bcf on expectations for a build of 64-66 bcf.  Stocks are now 592 bcf higher than a year ago, against a surplus of 580 bcf a week ago, a surplus of 571 bcf two weeks ago and a surplus of 568 bcf three weeks ago.  Stocks are now 23.12% higher than a year ago.  They are 517 bcf and 19.62% above the five-year average.

The five-year average for this week was a build of 55.60 bcf (Friday), the eight-year average was a build of 62.38 bcf.  Last year, there was a build of 88 bcf (Friday).   The range for this week has been builds of 23 to 88 bcf, with two 78’s and an 86.

EIA Report

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

News & Views

Friday’s decline ushered in a new period of fundamental ascendancy.  Of course, this was conditional upon weaker equities and a stronger US dollar.  But, if the technical momentum can keep this new trend lower going on those days when equities rally or the dollar falters, we could see prices adjusted lower to reflect supply and demand.

As we start this week, no less than three tropical storms are now a part of the landscape.  That could change things.

An Illustrated Look at Energy Market Factors

A Look at Atlantic Tropical Weather

Tropical Storm Claudette targets the Florida panhandle.

Tropical Storms Ana and Bill are on the horizon

A Look at the US Dollar Versus the Euro

Dollar-Euro (dollar in euro cents):  Three-Month Bar-Chart  The US dollar rallied on Friday, and improvements in the US balance of trade are offering support for the dollar.  If this rally continues, it will be supportive for oil prices.  There is support @ 68.50 euro cents and resistance @ 71.50-71.75, 72.25 and @ 72.75.  Upside breakouts would help push quotes higher, which would be bearish for oil prices.

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

A Look at Inventories

Distillate stocks are near 24-year highs.

This table shows distillate stocks over the last few years, with the amount seen on the date nearest last week’s reporting date, the 13-week demand at the time, stock levels at the start of the following heating season, and then at the end of that heating season.  What’s our point?  We have a lot more distillate than we have needed in recent years.

Source: Department of Energy.  Figures averaged & collated by Cameron Hanover

Recommendations for Specific Market Segments

We are going to take the next two Friday’s off as our summer vacation. 

If you need prices, please just call or email us for them.