Prices for August 17th, 2009

Market Review for Monday

IL prices continued lower yesterday, in effect confirming the decline seen on Friday. Stock markets (equities) suffered another decline and, although the dollar dropped yesterday, it did not fall by enough to generate enough buying in oil to carry the day. With the Dow Jones Industrial Average (DJIA) down 186 points, the oil market would have needed a very steep decline in the US dollar to rally. As a result, crude oil prices fell to their lowest level since the end of July.

Traders have been talking about oil market fundamentals, which is a welcome relief to those who feel that oil prices should reflect oil supply and demand rather than extraneous outside factors, like equities or currencies. Of course, it is not that simple. We have seen repeatedly that oil market fundamentals are typically only allowed to prevail when price moves in equities and currencies “allow” them to shine through. We cannot, at this stage, claim that oil market fundamentals have burst through strictly on their own merit, nor can we say that equities or currencies have been stripped of their ability to “trump” the supply and demand factors that have been the primary influence in oil markets for a quarter of a century (c. 1982-2007).

The supply & demand picture is enough to overwhelm the return yesterday by traders to three named storms. Tropical Storm Claudette seems to be dissipating its strength from Florida to Louisiana, Tropical Storm Ana has broken up and Hurricane Bill now seems headed towards the lower US East Coast. While any landfall is unwelcome, the market is assessing its potential impact on oil production and refining, and the feeling, right now, is that those facilities (in the US Gulf) are unlikely to be threatened (see pages 7 & 8).

Despite the general weakness yesterday, gasoline prices rallied in September and October contracts. Traders were buying the front two months of gasoline in the expectation that this week’s DOE report will show a drawdown in gasoline inventories. Of course, at this time of year, many market participants move their focus to distillates, and the fundamentals there are as poor as they have ever been.

Prices are oversold on very short-term oscillators, but they remain overbought on longer-term indicators. We would not be surprised to see a brief rally, but the new trend seems pointed lower. Technicals in this complex are now bearish, for the most part.

Technicals

           Oil prices were mostly lower again yesterday, with only the front two months in gasoline futures higher. What may be telling, though, for today, was the fact that prices ended the session nearer the day’s highs than lows. Gasoline prices seem to have had a common reversal to the upside with yesterday close near the day’s high.

Cents per gallon

Above:  Gasoline is 12.5 cents over heating oil, but sometime between now and mid-October, heating oil should be over gasoline.

September crude oil now has buy-stops over $67.70, $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 $65.20, $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 185.25, 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 181.00, 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 195.60, 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 188.65, 184.50, 182.60, 176.75, 175.00-175.15, 169.70, 168.00, 165.25, and 160.10. 

Football: The bears gained eight yards yesterday, on first down, making it second and two to go, today.

Technical Support & Resistance

Sep crude oil Support: $64.95-$65.23, $62.70-$62.85, $62.00-$62.10, $61.00-$61.20, $60.00-$60.25.

Resistance: $67.60-$67.70, $71.50-$71.60, $72.10-$72.21, $72.70-$72.84, $73.25-$73.38.

Sep heating oil Support: 182.55-182.70, 178.40-178.55, 171.65-171.80, 165.80-166.00, 163.75-164.00.

Resistance: 185.10-185.25, 193.15-193.30, 194.50-194.65, 196.10-196.21, 197.30-197.40.

Sep Rbob Support: 188.65-188.80, 184.50-184.70, 182.60-182.75, 176.75-177.00, 175.00-175.15.

Resistance: 195.45-195.60, 204.60-204.75, 206.60-206.76, 207.00-207.20, 207.75-207.85.

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 fell by 7,397 contracts on Friday, when prices were lower. That looks like long liquidation, which would be theoretically supportive.

      Heating oil open interest fell by 4,083 contracts on Friday, when prices were lower.  That looks like long liquidation and would be constructive.

      RBOB open interest fell by 5,131 contracts on Friday, when prices dropped. That looks like long liquidation and is bullish.

      Natural gas open interest fell by 11,370 on Friday, when prices dropped. This looks like net long liquidation, which should be supportive.

Friday’s Open Interest Changes:  

Crude 1,189,357  dn 7,397        Heat 310,947   dn 4,083       RBOB 226,835  dn 5,131       Nat gas 737,967  dn 11,370

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 fell for the eighth consecutive day yesterday, busting through the low for the year, at $3.155, and printing the lowest low since September 5th, 2002. Curiously enough, the new low came just as this year’s Atlantic hurricane season has gotten under way. From nothing on Friday, traders returned this week to a hurricane and two tropical storms. None threatened the facilities of the US Gulf.

Some market observers pointed at the ample storage picture and weak industrial demand, but these have been in place for more than a year, and one would think that they had been largely discounted on the decline to $3.155 - the low that was so unceremoniously broken yesterday. The fact that prices have fallen 87.9 cents over eight sessions, to get us to yesterday’s settlement leads one to believe that the large number of speculative shorts in this market have been trying to press quotes low enough to trigger sell-stops – which would give the shorts an opportunity to cover. We may be way off course, but the suddenness of the decline leaves us wondering why here, why now? We still think there is something behind it.

It does not really matter, now. Prices have broken to new lows, and now the two-dollar handle is just a hop and a jump below us. One might wonder if prices have a ninth consecutive decline in them, but we are not sure what would stop them today that did not stop them last week or yesterday. This market is not looking ahead, not to hurricanes or a stronger economy or better demand or the decline in output certain to come from lower rig counts. Right now, this market is looking backwards, at the plentiful supplies in storage and at pitiful industrial demand.

In cash trading yesterday, Henry Hub prices were at $3.07-$3.16, down $0.08-$0.08 on the day (DJN).  SoCal prices were at $3.03-$3.18, down $0.01-$0.06 on the day.  El Paso Permian prices were down $0.02 and up $0.01 at $2.97-$3.08.  Katy prices were down $0.03-$0.05 at $3.03-$3.12.  Waha prices were down $0.03 and up $0.04 at $3.02-$3.12.  Transco 6 was up $0.24-$0.45 at $3.69-$4.00/mmBtu, according to Dow Jones News (DJN).

Palo Verde prices were last quoted at $29.00-$33.25/mwh.  Northeastern prices last traded at $36.00-$61.00.  Entergy was last at $29.50-$30.50.  Ercot was last at $35.00-$35.50/mwh.

The bears don’t just have the ball, they’ve run the bulls out of town. One might have expected to see bargain-hunting or commercial buying at these lower prices, but end-users seem to be in a state of shock, here. We are not even sure that a two-dollar handle would bring them back in on the buy side in any numbers. At this stage, the best buying will come from shorts covering positions, and it is hard to say what numbers they may be looking for. We thought they might be happy with anything under $3.00, but they may have designs on even lower prices.

Support is at $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 $3.28-$3.30, $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 broke to their lowest levels since 2002 yesterday.

Dollars per million Btu

Sep Natural Gas:          Support:       $3.15-$3.17, $3.10-$3.14, $2.88-$2.91, $2.83-$2.84, $2.74-$2.75, $2.64-$2.66.

                                       Resistance:     $3.28-$3.30, $3.40-$3.41, $3.59-$3.61, $3.73-$3.77, $3.85-$3.86, $4.09-$4.11.

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

The fundamentals are bearish, here, and that is apparent to anyone following this market complex. The continuing problem is getting traders’ attention focused on the fundamental factors rather than on movement in equities (when higher) or the US dollar (when lower). It seems to require a “perfect storm” for the fundamentals to shine through.

An Illustrated Look at Energy Market Factors

A Look at Atlantic Tropical Weather

Hurricane Bill is expected to lash the lower US East Coast

Hurricane Bill seems likely to hit the US East Coast

Powerful wind currents are steering Hurricane Bill

Tropical Storm Claudette is dissipating its energy over Florida and Louisiana.

Source: www.weather.com

A Look at the US Dollar Versus the Euro

Dollar-Euro (dollar in euro cents): Three-Month Bar-Chart The US dollar was slightly lower yesterday, but not by enough to trigger fresh buying in oil markets. The dollars needs a bigger move to influence oil quotes, it seems. 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

Reprinted from yesterday’s report (for any who might have missed it).

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.