Prices for September 16th, 2009

Market Review for Wednesday

HE oil complex rallied again yesterday as traders reacted to a larger-than-expected drawdown in crude oil stocks, an advance of 108 points on the DJIA and yet new lows for the US dollar.  Refined products stocks increased, but not by enough to push quotes lower.  Last week’s figures were bullish for crude and bearish for products, and prices reacted accordingly.  This week, same situation with the numbers, but all three markets advanced.  The difference, as far as we can tell, was the dollar weakness and stock market strength this week.

According to Dow Jones, government data now shows that we have 50 days of forward coverage in distillate, well above the five-year average of 34.5 days.  Despite that fact heating oil distributors have waited until now to lock in customers for the coming winter.  Caps are what we are hearing are being purchased by consumers.  After last year’s debacle for fixed-price coverage, consumers have started to grasp the concept of caps and now seem willing to pay up front to cover premium costs.  It makes sense.  But, the buying now has firmed up cash and futures markets.

The biggest development in this week’s report was the increase, year-on-year, in total products supplied, or aggregate demand.  Four-week average total demand is now 693,000 bpd and 3.69% higher than a year ago.  Just 10 weeks ago, total products supplied were 1.258 mln bpd lower than a year ago, for a four-week average of 6.44% lower than the previous year.  In a little more than two months, total product demand has improved by more than we have ever seen before.  This is truly a remarkable recovery in total consumption in a comparatively brief period. 

Traders were also swayed by the crude draw, which flew in the face of the build reported by the API on Tuesday night.  One of the more interesting aspects of the draw was the movement of 3.7 million barrels out of storage in Cushing, Oklahoma, the Nymex light, sweet crude oil hub.  The crude oil inventory surplus against a year ago also dropped by 5.0 million barrels, from 34.8 mln bbls a week ago to 29.8 mln bbls in this latest report.  A week earlier, the year-on-year surplus had been 41.8 mln bbls.  At the same time, though, it has really only been converted into products.  The surplus in distillate stocks has risen from 30.9 to 36.6 mln bbls, while the gasoline surplus has grown from 8.0 to 13.9 mln bbls over the last two weeks.

Technicals

           Oil prices were higher yesterday and crude is on the brink of breaking $72.90, which would leave the resistance at $75.00.  Heating oil broke over resistance at 182.53 and now has resistance at 193.82 and then major resistance at 197.38.  Gasoline prices has resistance at 185.67, 188.65, 194.00 and then at 195.51.    

Dollars per barrel.

Above:  Crude oil prices turned up yesterday.  There is resistance at $72.90 and $75.00 and support at $67.00 and $65.23.

October crude oil now has buy-stops over $72.90, $73.35-$73.52, $75.00, $76.25, $79.17, $84.83, $85.13, $89.82, and $90.99.  Sell-stops are under $70.00, $68.00, $67.54, $67.00, $65.80-$66.11, $64.95, $62.70, $62.00-$62.09, $61.00, $60.00-$60.25, $59.65, $58.30, $56.55, and $56.15.  October heating oil has buy-stops over 182.80, 184.81, 187.15, 192.45 192.83, 193.85, 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 175.34, 173.00, 170.70, 170.00, 165.80, 163.75, 157.45, 155.85, 151.65, 148.70, 147.70, 141.30, 140.90, and 137.50.  October RBOB has buy-stops over 185.67, 186.15, 207.00, 208.15, 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 176.64, 173.00, 172.60, 169.70, 168.00, 165.25, and 160.10. 

Football: The bears had the ball stripped and the bulls gained enough for a first down.  It is the bulls’ first down, here.

Technical Support & Resistance

Oct crude oil                        Support:             $70.00-$70.20, $68.00-$68.10, $67.00-$67.05, $66.00-$66.15, $64.95-$65.23.

                                           Resistance:        $72.80-$72.90, $73.35-$73.55, $74.60-$75.00, $76.10-$76.25, $79.00-$79.17.

Oct heating oil      Support:             175.30-175.45, 173.00-173.15, 171.65-171.80, 170.70-170.85, 170.00-170.20.

                             Resistance:        182.70-182.80, 184.70-184.81, 191.35-191.45, 192.30-192.45, 192.75-192.83.

Oct Rbob                     Support:             176.60-176.75, 173.00-173.15, 172.60-172.75, 169.70-169.85, 168.00-168.15.

                                           Resistance:        184.90-185.00, 185.45-185.67, 206.85-207.00, 208.00-208.15, 211.00-211.24.

Oil Inventory Reports

      This week’s DOE report showed more of what we saw last week.  Crude stocks were lower, while refined products stocks increased.  Over the last two weeks, the year-on-year crude oil stock surplus has declined while the refined products year-on-year surpluses have increased.  It has been a simple conversion of crude into products, more or less.  Refinery utilization, as it typically does at this time of year, has started to decline.  This will continue over the next six or seven weeks, we should expect.  Ultimately, the decline in utilization will lead to smaller builds in products and smaller draws in crude oil inventories.  We may be looking at the fullest extent of the relationship for now. 

     Distillate stocks are now 36.6 million bbls, or 27.90%, higher than a year ago.  Heating oil inventories are 12.1 mln bbls, or 32.53%, higher than they were a year ago.  Gasoline stocks are 13.9 mln bbls (up 7.17%) higher against a year ago.  Crude oil stocks are now 29.8 million bbls, or 9.83%, higher than a year ago.  Residual stocks are 4.8 mln bbls (12.40%) lower than a year ago, jet fuel stocks are 5.3 mln bbls, (13.28%) higher than a year ago.  Utilization is 9.54% higher than a year ago and 3.51% below the eight-year average.  It is 5.26% lower than the four-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 22,709 contracts on Tuesday, when prices were higher.  That looks like short-covering, which would be bearish. 

      Heating oil open interest fell by 1,415 contracts on Tuesday, when prices were higher.  That looks like short-covering and is bearish.

      RBOB open interest fell by 1,841 contracts on Tuesday when prices were higher. That looks like short-covering and is bearish.   

      Natural gas open interest fell by 10,289 on Monday, when prices were mixed to higher.  That looks like short-covering in the front month and long liquidation in the deferred contracts. 

Tuesday’s Open Interest Changes:  

Crude 1,197,629  dn 22,709       Heat 317,062   dn 1,415       RBOB 203,784  dn 1,841       Nat gas 744,146  dn 10,829  

CFTC Commitments of Traders  (for the period ended Tuesday, Sep. 8th)   

 As of Sep. 8th:                 Long                   Short:

Crude oil                    211,936               178,824                           -contracts held by speculators:  1.18 long

                                          629,710               667,430                               held by the trade

                                            76,226                 71,618                               held by small specs and hedgers.

Spreads….dn 7,332 contracts   The ratio went from 1.15-to-one long to 1.18-to-one over the last week.

   Large speculators liquidated 3,793 long contracts and covered 8,311 shorts over the week under review.  Commercials added 22,119 new longs and added 22,224 shorts.  Small specs and hedgers added 2,758 longs and added 7,171 shorts.  Open interest rose by 13,752 contracts as prices rallied $3.05/barrel.  That looks like net, new buying, which would be bullish.  Commercials were doing the best buying, and large speculators were covering shorts.  Small specs and hedgers were selling short.

   The average large speculator has 2,119 long contracts (100 accounts), or 60 less contracts on average on 1 more account, and 1,753 shorts (102 accounts), or an average of 64 contracts less on 1 less account.  Commercials held 7,238 longs (87) or 172 fewer longs on average on five more accounts, and 6,881 shorts (97), or 17 more shorts on 3 more accounts. Reportables held 3,880 longs (284, up 13 accts) and 4,099 shorts (270 accts, up 5).There were 146 less longs and 52 fewer shorts on average.

Heating oil                   44,223                 18,819                           - contracts held by speculators:  2.35 to 1 long

                                          187,802               218,733                              held by the trade.

                                            33,669                 28,142                               held by small specs and hedgers.

Spreads….up 3,329 contracts.    The ratio of large speculative longs to shorts went from 2.89-to-one to 2.35-to-one in 1 week.

       Large speculators liquidated 587 longs and added 3,329 shorts.  Commercial accounts added 9,273 longs and added 1,323 shorts.  Small speculators and hedgers liquidated 664 longs and added 3,370 shorts.  Open interest grew by 10,947 contracts as prices rallied 2.36 cents.  That looks like net, new buying and is supportive.  The only new buying came from commercial accounts.  Speculators were selling into higher prices.

       The average large speculative long is holding 1,340 contracts (up 161 lots on 33 accounts, dn 5 accts), while the average short has 627 contracts (up 7 lots on 30 accts, up 5).  The average commercial long is holding 2,722 contracts (up 135 contracts on 69 accts, unch) compared to the average short holding of 3,038 contracts (up 100 lots on 72 accts, dn 2).  The average reportable position is 2,132 long (up 90 lots on 128 accts, unch) while the average short holding is 2,142 (up 26 lots on 130 accts, up 2). There were the same number of reportable longs and two more short accounts, adding 90 longs and 26 shorts.

Rbob Gasoline            53,343                10,568                          -contracts held by speculators:  5.05 to 1 long

                                           123,627              170,280                             held by the trade.

                                             13,725                  9,847                              held by small specs and hedgers.

Spreads…up 520 contracts   The ratio of large speculative longs to shorts went from 10.09-to-one to 5.05-to-one in 3 weeks.

     Large speculative holdings rose by 71 longs and fell by 255 shorts over the latest week. Commercial holdings fell by 1,049 longs and fell by 325 shorts.  Small speculators and hedgers’ positions grew by 286 longs and fell by 112 shorts.  Open interest fell by 172 contracts as prices rallied 4.67 cents, which looks like short-covering and would be negative.  The ratio of longs to shorts is at 5.05-to-one from more than 10-to-one three weeks ago.  All three categories were covering shorts during the period under review.  Speculators were buying very lightly.

   The average holdings are 920 contracts for each large speculative long (71 accts, up 16 accts) and 480 for each large speculative short (22, unch).  The average commercial long now has 1,792 contracts long (69) and 1,892 short (90). Average reportable holdings are 1,253 long (154) against 1,426 short (138).  There were 10 less reportable long accounts and 13 more short accounts, decreasing average longs by 90 contracts and average shorts by 149 contracts.

Naturalgas                95,911               264,540                           -contracts held by speculators:  2.76 to 1 short

                                         319,734               191,333                               held by the trade.

                                           83,378                 43,150                           held by small specs and hedgers.

Spreads…dn 5,250 contracts    The ratio of large speculative shorts to longs went from 2.85-to-one to 2.76-to-one in 1 week.

  Large speculative holdings were up by 4,298 longs and were up by 3,081 shorts over the latest week. Commercial accounts were up 4,615 longs, and added 5,566 shorts, while small speculators and hedgers liquidated 3,443 longs and covered 3,177 shorts.  Open interest grew by 220 contracts as prices fell 1.4 cents.  That looks like net, new selling, but it was not heavy enough to make a major statement.  Large speculators and commercials were buying and selling heavily, while small specs and hedgers were liquidating and covering existing holdings.

  The average large speculator has 989 contracts (97) while each large speculative short is holding 2,496 shorts (106).  The average commercial long now has 3,675 contracts long (87) and 2,814 short (68). Average reportable holdings are 2,537 long (251) long and 2,931 short (231).  There is one less long account and four fewer short accounts the reportable category, and that increased the average long holding by 24 contracts and raised the average short position by 64 contracts.  This report caught the market at a major turning point.  This week’s report is bound to be more interesting.

Natural Gas & Utility Generation

Natural gas prices had another extremely strong day yesterday, gaining 44 cents during the session.  On Tuesday, we had our first instance of net short-covering during the current move, which began with a low at $2.409 on September 4th.  And, since September 3rd, open interest had risen by more than 40,000 contracts before Tuesday’s short-covering ate into the total.  The open interest figures had suggested that new buying, on a net basis, had been responsible for the advance in prices.  There has been a huge overhang of large speculative shorts in this market, and we were wondering if they were ever going to cover their short holdings.  And it seemed that shorts had been increasing their holdings as prices slipped towards what became the low at $2.409.  The question, now, is whether we have finally reached a level at which natural gas seems attractive against whatever these traders had been holding on the long side for so long. 

There was a report out yesterday showing output from factories, mines and utilities up 0.8% in August, which was more than the 0.6% that had been expected by analysts.  This, along with strength in equities, seems to have persuaded natural gas traders that it is now time to start building an expectation of economic recovery into historically low prices.

In cash trading yesterday, Henry Hub prices were at $3.20-$3.36, up $0.05 and down $0.03 on the day (DJN).  SoCal prices were at $3.53-$3.74, up $0.14-$0.28 on the day.  El Paso Permian prices were up $0.07-$0.12 at $3.32-$3.40.  Katy prices were up $0.08-$0.12 at $3.22-$3.35.  Waha prices were up $0.05-$0.05 at $3.29-$3.37.  Transco 6 was up $0.33-$0.38 at $3.53-$3.62/mmBtu, according to Dow Jones News (DJN).

Palo Verde prices were last quoted at $33.50-$35.50/mwh.  Northeastern prices last traded at $28.25-$36.00.  Entergy was last at $27.00-$29.25.  Ercot was last at $29.00-$31.00/mwh.

Expectations for this morning’s EIA underground storage report are for a build of 76-79 bcf, according to the surveys conducted by Dow Jones and Bloomberg, respectively.  Last year, on the same date, there was a build of 65 bcf, according to Dow Jones, and the five-year average of the same dates averages out to a build of 82 bcf.  Using similar Friday’s, we had a build last year of 67 bcf and the five-year average is a build of 82.2 bcf.  Using the data available for the last eight years in our own reports, which do not include any subsequent revisions, the eight-year average is a build of 84.0 bcf.  Today’s report has the potential to increase the surplus against a year ago while decreasing the surplus against the multi-year averages. 

Either way, storage facilities are approaching their maximum capacities, and we are hearing of isolated incidents of producers being forced or asked to limit output to avoid system-wide curtailments.  Capacity is just below 3.9 tcf, DJN reports.

Support is at $3.28-$3.32, $2.91-$2.93, $2.80-$2.82, $2.74-$2.75, $2.69-$2.70, $2.62-$2.64, $240-$2.43, $2.35-$2.36, $2.21-$2.24, $2.14-$2.16 and $2.05-$2.07.  Resistance is at $3.78-$3.80, $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, and $5.01-$5.03. 

Natural gas prices advanced to new recent highs yesterday.

Dollars per million Btu

Oct Natural Gas:          Support:        $3.28-$3.32, $2.91-$2.93, $2.80-$2.82, $2.74-$2.75, $2.69-$2.70, $2.62-$2.64.

                                                    Resistance:     $3.78-$3.80, $3.85-$3.86, $4.09-$4.11, $4.15-$4.16, $4.24-$4.28, $4.31-$4.33.

EIA Weekly Storage Figures

Last week’s EIA report showed a build of 69 bcf on expectations for a build of 71-74 bcf.  Stocks are now 495 bcf higher than a year ago, against a surplus of 489 bcf a week ago, a surplus of 516 bcf two weeks ago and a surplus of 562 bcf three weeks ago.  Stocks are now 17.09% higher than a year ago.  They are 503 bcf and 17.41% above the five-year average.

The five-year average for this week was a build of 82.2 bcf, while the eight-year average was a build of 84.0 bcf.  Last year, there was a build of 67 bcf.  This week’s estimates are for a build of 76-79 bcf.

EIA Report

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

News & Views

We never know which market is going to show up on any given day any more.  Some days, the fundamentals come back to influence prices.  Other days, it’s all about the stock market or the dollar.

An Illustrated Look at Energy Market Factors

A Look at the US Dollar Versus the Euro

Dollar-Euro (dollar in euro cents):  Three-Month Bar-Chart  The US dollar made new recent lows again yesterday, as the trend continues pressing quotes lower.  We still believe that prices have embarked upon a new major leg lower, which could take prices down to the 67.50 euro cents level.  Any continuing weakness will be bullish for oil and commodities. 

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

A Look at the Dow Jones Industrial Average (djia)

Dow Jones Industrial Average: Six Month Chart

The DJIA powered to new highs for the year, yesterday, gaining 108 points.  This helped push oil prices higher.

The assumption is that a stronger DJIA signals continuing economic recovery and stronger oil demand.

Source:  http://www.google.com/finance?q=INDEXDJX:.DJI

A Look at Gasoline Supply & Demand

Thirteen-week demand is at 9.171 million bpd, down 1.78% against last year.  Thirteen-week supply is at 10.054 mln bpd, up 0.36%.  Thirteen-week implied demand is at 10.026 mln bpd, down 2.51%.

A Look at Distillate Supply & Demand

-week demand is at 3.360 million bpd, down 18.83% against last year.  Thirteen-week supply is at 4.208 mln bpd, down 8.27%.  Thirteen-week implied demand is at 4.032 mln bpd, down 9.70%.

A Look at Refinery Utilization

Utilization is 9.54% higher than a year ago and 3.51% below the eight-year average.  It is 5.26% lower than the four-year, pre-Katrina average. 

Recommendations for Specific Market Segments