Prices for September 18th, 2009

Market Review for Friday & over the Weekend     

IL prices were lower on Friday as traders took profits on long holdings.  The US dollar rallied, and traders were liquidating longs in the oil market going into the weekend based on the dollar’s recovery.  Despite that, the trend still seems pointed lower in the greenback, and Friday’s activity is more likely to be a one-time rally rather than the start of any longer-term advance (in the dollar). 

For the week, crude oil prices gained $2.74/barrel, heating oil gained 9.71 cents a gallon and gasoline prices were up 7.26 cents a gallon.  The weaker dollar was the biggest factor behind last week’s gains, but the strong stock market also played a major role.  The DJIA made new highs for the year more than once last week.  And the stock market looks like it wants to continue moving higher from here.  Between a dollar trending lower and equities trending higher, it will be difficult for oil prices to return to their basics.  The fundamentals are improving, but are still bearish.  This is especially true of distillate, which now has the highest inventory levels since January, 1983, and which saw its four-week demand figure drop in the latest report.

Traders are also starting to discount the impact of maintenance turnarounds and low refining margins.  They are looking ahead to lower refinery rates, which should reduce demand for crude but should also cut back on the production of refined products.  While this anticipation has not yet helped margins recover, it has been a factor when oil prices have sold off. 

 Traders are also looking ahead to this year’s heating season.  Temperatures are still trending colder, but long-range forecasts are suggesting that El Nino factors could give us a warmer-than-normal winter.  Whether that makes it to the Northeast, though, remains to be seen.  Typically, we need to see three or four weeks of colder-than-normal or warmer-than-normal readings to set up a new trend.  The most likely time for a trend-change is from now through mid-November, with October often furnishing temperature trend changes.  The current colder trend started in early November a year ago. 

The other big wild card in front of us is the economy.  There is a good deal of disagreement over the nature of the bottom, which most feel is already in place.  Debate is centered around letters, with “V,” “U,” “L,” and “W” the leading candidates describing the bottom.  The debate is over where we go from here.

Technicals

           Crude oil prices broke above $72.90 last week, but could not finish above it, thereby extending resistance up to $73.16, with major resistance at $75.00.  Heating oil now has resistance at 193.82 and then major resistance at 197.38.  Gasoline prices now has resistance at 188.65, 194.00 and then at 195.51.  Trends are sideways to higher.

Dollars per barrel.

Above:  The crack spread finished at $5.16 yesterday, and is near the lowest levels seen yet in 2009.  It is bad for refiners.

October crude oil now has buy-stops over $73.16, $73.35-$73.52, $75.00, $76.25, $79.17, $84.83, $85.13, $89.82, and $90.99.  Sell-stops are under $71.25, $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 185.70, 187.15, 192.45 192.83, 193.85, 194.65, 196.21, 197.40, 199.20, 209.40, 215.00, 221.13, and 225.80. Sell stops are under 181.50, 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 185.35, 187.31, 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 182.20, 176.64, 173.00, 172.60, 169.70, 168.00, 165.25, and 160.10. 

Football: The bulls lost four yards on second and 10, making it third and 14 to go as we start the new week.

Technical Support & Resistance

Oct crude oil                        Support:             $71.25-$71.40, $70.00-$70.20, $68.00-$68.10, $67.00-$67.05, $66.00-$66.15

                                           Resistance:        $72.55-$72.66, $73.35-$73.55, $74.60-$75.00, $76.10-$76.25, $79.00-$79.17.

Oct heating oil      Support:             181.50-181.70, 175.30-175.45, 173.00-173.15, 171.65-171.80, 170.70-170.85.

                             Resistance:        185.60-185.70, 191.35-191.45, 192.30-192.45, 192.75-192.83, 193.75-193.85.

Oct Rbob                     Support:             182.20-182.35, 176.60-176.75, 173.00-173.15, 172.60-172.75, 169.70-169.85.

                                           Resistance:        185.45-185.67, 187.20-187.31, 206.85-207.00, 208.00-208.15, 211.00-211.24.

Oil Inventory Reports

      Of all the weeks in the year, this week has seen the largest changes in utilization.  Over the last eight years, only one had a change of less than a full percentage point, and last year, after Hurricane Ike, utilization fell by 10.7%.  In 2004, after Hurricane Ivan, utilization fell 7.6%.  The average decline, in the six years declines were seen, was 4.28%.  This week has been peculiar in other ways, having more years showing drawdowns than builds in distillate stocks and with six of the last eight years seeing builds in gasoline.  Crude oil imports have also seen huge moves this week, with declines of 1.367 million bpd in 2008 and of 1.488 mln bpd in 2004, with builds of 0.704, 0.491 and 0.637 mln bpd in the intervening years. 

     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 grew by 13,577 contracts on Thursday, when prices were mixed.  That looks like new buying and selling, and under the circumstances is more bullish than bearish.

      Heating oil open interest rose by 524 contracts on Thursday, when prices were higher.  That looks like new buying and is supportive. 

      RBOB open interest grew by 2,079 contracts on Thursday when prices were higher. That looks like new buying and is supportive.   

      Natural gas open interest fell by 5,094 on Thursday when prices were lower.  That looks like long liquidation and is supportive.    

Thursday’s Open Interest Changes:  

Crude 1,198,299  up 13,577       Heat 316,942   up 524       RBOB 216,502  up 2,079       Nat gas 729,546  dn 5,094       

CFTC Commitments of Traders  (for the period ended Tuesday, Sep 15th)   

 As of Sep 125h:                 Long                   Short:

Crude oil                    219,352               173,795                           -contracts held by speculators:  1.26 long

                                          629,344               676,051                               held by the trade

                                            75,287                 74,137                               held by small specs and hedgers.

Spreads….up 13,255 contracts   The ratio went from 1.15-to-one long to 1.26-to-one over the last 2 weeks.

   Large speculators added 7,416 long contracts and covered 5,029 shorts over the week under review.  Commercials liquidated 366 new longs and added 8,621 shorts.  Small specs and hedgers liquidated 939 longs and added 2,519 shorts.  Open interest rose by 19,366 contracts as prices dropped $0.17/barrel.  That looks like new selling and is bearish.  The best new selling came from commercials and from small speculators and hedgers.

   The average large speculator has 2,150 long contracts (102 accounts), or 31 more contracts on average on 2 more accounts and 1,773 shorts (98 accounts), or an average of 20 contracts more on 4 less accounts  Commercials held 7,152 longs (88) or 86 fewer longs on average on one more account, and 7,116 shorts (95), or 235 more shorts on 2 less accounts. Reportables held 4,066 longs (276, dn 8 accts) and 4,305 shorts (261 accts, dn 9). There were 186 more longs and 206 more shorts on average.

Heating oil                   46,114                 17,456                           - contracts held by speculators:  2.64 to 1 long

                                          196,946               229,918                              held by the trade.

                                            34,917                 30,603                               held by small specs and hedgers.

Spreads….dn 1,824 contracts.    The ratio of large speculative longs to shorts went from 2.35-to-one to 2.64-to-one in 1 week.

       Large speculators added 1,891 longs and covered 1,363 shorts.  Commercial accounts added 9,144 longs and added 11,185 shorts.  Small speculators and hedgers added 1,248 longs and added 2,461 shorts.  Open interest grew by 10,459 contracts as prices dropped 0.24 cents.  That looks like net, new selling and is bearish.  Commercials and small specs and hedgers were sellers.  Commercials were far and away the biggest new sellers. 

       The average large speculative long is holding 1,397 contracts (up 57 lots on 33 accounts, unch), while the average short has 623 contracts (dn 4 lots on 30 accts, up 2).  The average commercial long is holding 2,854 contracts (up 132 contracts on 69 accts, unch) compared to the average short holding of 3,107 contracts (up 69 lots on 74 accts, up 2).  The average reportable position is 2,187 long (up 55 lots on 129 accts, up 1) while the average short holding is 2,187 (up 45 lots on 131 accts, up 1). There were the same number of reportable longs and two more short accounts, adding 90 longs and 26 shorts.

Rbob Gasoline            47,577                13,266                          -contracts held by speculators:  3.59 to 1 long

                                           127,859              164,170                             held by the trade.

                                             14,003                12,003                              held by small specs and hedgers.

Spreads…dn 1,645 contracts   The ratio of large speculative longs to shorts went from 10.09-to-one to 3.59-to-one in 4 weeks.

     Large speculative holdings fell by 5,766 longs and grew by 2,698 shorts over the latest week. Commercial holdings rose by 4,232 longs and fell by 6,110 shorts.  Small speculators and hedgers’ positions grew by 278 longs and grew by 2,156 shorts.  Open interest fell by 2,901 contracts as prices dropped 3.97 cents, which looks like long liquidation and is supportive.  The ratio of longs to shorts is at 3.59-to-one from more than 10-to-one four weeks ago.  Large speculators were liquidating longs while commercials were covering shorts.

   The average holdings are 933 contracts for each large speculative long (51 accts, dn 20 accts) and 553 for each large speculative short (24, up 2).  The average commercial long now has 1,776 contracts long (72) and 2,002 short (82). Average reportable holdings are 1,282 long (148) against 1,442 short (133).  There were 6 less reportable long accounts and 5 fewer short accounts, increasing average longs by 29 contracts and average shorts by 16 contracts.

Naturalgas                84,448               258,314                           -contracts held by speculators:  3.06 to 1 short

                                         334,359               200,287                               held by the trade.

                                           81,489                 41,695                           held by small specs and hedgers.

Spreads…up 22,591 contracts    The ratio of large speculative shorts to longs went from 2.76-to-one to 3.06-to-one in 1 week.

  Large speculative holdings dropped by 11,463 longs and dropped by 6,226 shorts over the latest week. Commercial accounts were up 14,625 longs, and added 8,954 shorts, while small speculators and hedgers liquidated 1,889 longs and covered 1,455 shorts.  Open interest grew by 2,864 contracts as prices rose 51.3 cents.  That looks like net, new buying, which would be supportive.  Commercials were heavy buyers, but were also selling, although not as much.  Speculators liquidated longs and covered shorts.  There is still a huge disproportion of large speculative shorts in this market. 

  The average large speculator has 1,083 contracts (78) while each large speculative short is holding 2,532 shorts (102).  The average commercial long now has 3,800 contracts long (88) and 2,821 short (71). Average reportable holdings are 2,694 long (246) long and 3,150 short (223).  There are five less long accounts and eight less short accounts in the reportable category, which increased the average long holding by 157 contracts and the average short holding by 219 contracts.  There were 19 fewer large speculative long accounts and four fewer large speculative shorts (increased average longs by 94 and shorts by 36).

Natural Gas & Utility Generation

Natural gas prices rallied by 32 cents on Friday, completely negating Thursday’s decline.  This is the second time in recent weeks that a steep decline in natural gas prices has been followed immediately by a sharp advance that erased the previous day’s losses.  And that is an extremely bullish sign that informs us that this recent advance is completely different than previous attempts to find a bottom.

There are, of course, some disturbing factors from a bull’s perspective.  The most recent advances have come on short-covering, but it has been primarily commercial short-covering.  Large speculators still hold three shorts for every long, which tells us that they are short natural gas against something else.  And, since the shorts are in the large speculative category, they are not long physical natural gas against the short futures position.  According to the new “disaggregated” CFTC figures, 75% of the outstanding short position is being held by managed money concerns.  We had expected it to come from swap dealers, but that is far from the case.  For reasons that escape us, managed money concerns are short by a factor of 2.73-to-one.  They have held their positions, presumably it was them, for nearly three years, so they must be long oil against these short positions.

In cash trading yesterday, Henry Hub prices were at $3.05-$3.27, down $0.31-$0.35 on the day (DJN).  SoCal prices were at $3.39-$3.62, down $0.26-$0.27 on the day.  El Paso Permian prices were down $0.32-$0.37 at $3.11-$3.26.  Katy prices were down $0.18-$0.25 at $3.20-$3.31.  Waha prices were down $0.30-$0.31 at $3.13-$3.27.  Transco 6 was down $0.33-$0.35 at $3.28-$3.44/mmBtu, according to Dow Jones News (DJN).

Palo Verde prices were last quoted at $33.00-$37.25/mwh.  Northeastern prices last traded at $30.25-$37.00.  Entergy was last at $29.00-$29.50.  Ercot was last at $34.50-$35.25/mwh.

The latest Baker-Hughes survey showed an increase of six to 705.  We have seen small incremental gains over the last several weeks, but the number of rigs searching for natural gas is still down dramatically from its high of 1,606, seen last September.  Part of the increase in prices recently has come with the knowledge that we are facing steadily diminishing output as the result of losing more than 900 active rigs over the past 12 months. 

Some producers have already started curtailing production, and the EIA (Energy Information Administration, the statistical arm of the DOE, Department of Energy), is predicting that natural gas in storage will reach 3.840 tcf.  The EIA also estimates capacity at 3.889 tcf.  As we get nearer to November 1st, storage and pipeline operators are more and more likely to turn material away as facilities get filled up.  The lost output from fewer active rigs is not likely to be a problem this coming winter, but it is something that will arrive suddenly, at some point, with potentially significant declines in output as a result.

Support is at $3.44-$3.46, $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, $3.88-$3.90, $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 were higher, again, on Friday.

Dollars per million Btu

Oct Natural Gas:          Support:        $3.45-$3.46, $3.28-$3.32, $2.91-$2.93, $2.80-$2.82, $2.74-$2.75, $2.69-$2.70.

                                                    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 66 bcf on expectations for a build of 76-79 bcf.  Stocks are now 496 bcf higher than a year ago, against a surplus of 495 bcf a week ago, a surplus of 489 bcf two weeks ago and a surplus of 516 bcf three weeks ago.  Stocks are now 16.74% higher than a year ago.  They are 487 bcf and 16.39% above the five-year average.

The five-year average for this week was a build of 68.8 bcf, while the eight-year average was a build of 75.25 bcf.  Last year, there was a build of 51 bcf. 

EIA Report

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

News & Views

This week will see the expiration of the October crude oil contract.  We expect a lower dollar, stronger equities and oil market fundamentals will vie for control of this market complex.

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 rallied slightly on what seems to have been profit-taking on Friday.  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 gained 36 points on Friday, establishing yet new fresh highs again for 2009. 

This is bullish for oil prices.

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

Recommendations for Specific Market Segments

  August Average Prices →

Average Monthly Nymex Settlement Prices

Crude Oil

The Nymex average crude oil settlement price in August was the highest for 2009 and was the highest since October, 2008.  It was also 81.20% above the February average, which was the low for 2009, at least this far in.  This past August average was 39% lower than the corresponding average seen a year ago, and was the lowest August average since 2005.  It was 2.52 times as large as the August average for 2002. 

Crude Oil      in dollars per barrel   

Open interest is for the final trading day of the month above.

Dollars per barrel

Heating Oil

The Nymex heating oil monthly average settlement price for August was the highest seen so far in 2009 and was the highest since October, 2008.  This year’s August average was $1.30 and 40.92% lower than a year ago and was the lowest August price seen since 2005.  It was 2.64 times as big as the average seen in August, 2002.   

Heating Oil               in cents per gallon

Cents per gallon

Gasoline

The August average Nymex gasoline (now RBOB) settlement price was the highest yet seen in 2009.  And it was more than double the average seen last December.  Nonetheless, it was more than 92 cents and 31.37% below last year’s August average.  It was higher than 2006 and 2007, though.  It was 2.56 times the August, 2002 average.

In August, 2009, Americans spent $11.436 billion less on gasoline than they had a year earlier.  That means that Americans have spent about $126.5 billion less on gasoline over the first eight months of 2009 than they did over the first eight months of 2008.  That is effectively a tax rebate of that amount, which translates into $422, so far, for each American man, woman and child, this year.  With gasoline representing about half the barrel, that comes to roughly $840 as the running rebate from oil so far this year.  It is a major factor behind this year’s recovery, so far, we believe.

Gasoline                    in cents per gallon

Cents per gallon

Natural Gas

The average Nymex natural gas price for August was the lowest so far this year, and was the lowest – of any monthly average - since August, 2002.  It is also the lowest August since 2002.  This August average is about 40% of the average seen a year ago, and this average is likely to spur demand at the same time that it discourages drilling and production. 

Natural Gas              in dollars per million Btu (British thermal units)

Copyright Cameron Hanover, 2009

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