Prices for September 23rd, 2009

Market Review for Wednesday 

HE Federal Reserve kept interest rates at record low rates and told financial markets that they can expect these rates to last “for an extended period.”  The Fed also announced that it will extend its $1.25 trillion purchase of mortgage-backed securities into next year.  The vote to keep Fed Funds at zero to 0.25% was unanimous (10-0).  The Fed did note signs of economic recovery, but its promises on maintaining the status quo should ease jittery traders’ minds.

Despite the reassurances from the Fed, the DJIA dropped roughly 165 points from the day’s highs.  At the same time, the US dollar made new lows and then rallied sharply in an apparent reversal day.  And oil prices dropped sharply, for the third big move in three days, with alternating losses, gains and now losses, again.  This week’s DOE report showed builds in all three major stock categories, which was bearish.  We did see a larger-than-forecast decline in refinery utilization rates, and total product demand is now up 4.36% over the last four weeks, but this was a more bearish than bullish report.  The drop in utilization and the increase in overall consumption will help longer-term, but the other factors have a more immediate impact.

We thought yesterday might have been a pivotal day – and it might have been.  We won’t know for certain until (and unless) we see key support broken.  According to Dow Jones, yesterday’s decline in crude oil was the biggest decline since August 14th.  The weekly oil demand figure dropped to 18.5 million bpd, but the four-week average is now 802,000 bpd higher than a year ago, or 4.36% higher.  We will have to see if coming weeks show a rebound in total products supplied (total demand). 

The year-on-year surpluses in inventories all grew this week.  The year-on-year distillate surplus went from 36.6 million barrels (27.90%) to 40.8 million bbls (31.38%).  The year-on-year surplus in gasoline went from 13.9 million bbls (7.17%) to 20.6 million bbls (0.70%) and crude’s surplus went from 29.8 million bbls (9.83%) to 32.2 million bbls (10.61%).  It has been a long time since all three major stock figures were higher and the year-to-year surpluses grew in the same week.

Four-week gasoline demand was up 4.47% against the same period a year ago, its biggest percentage gain in more than a year.  Four-week distillate demand, on the other hand, is now down 8.06%, which is worse than it was a week (in comparison with year-ago levels).   

Technicals

           Oil prices dropped sharply yesterday, and gasoline broke its lower range.  Crude oil is still in a range between $65.23 and $75.00 with a tighter range of $67.05 and $73.16.  Heating oil prices are in a range of 170.00-170.18 and 185.70.  Gasoline broke below 172.61 and has a swing objective to 151.77.

Dollars per barrel.

Above:  The crack spread reached a new low at $3.29 for 2009.  This spread was lower on December 31st, 2008.

November crude oil now has buy-stops over $71.80-$72.20, $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 $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 182.20, 182.80, 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 174.20, 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 177.50, 179.95, 183.65, 185.35, 187.31, 207.00, 208.15, 208.55, 211.24, 214.00, 222.70, 228.86, 240.10, and 250.40.  Sell-stops are under 168.45, 168.00, 165.25, and 160.10. 

Football: The bears took advantage of that first down, and the system does sometimes work spectacularly.  Bears’ first down.

Technical Support & Resistance

Nov crude oil                        Support:             $68.00-$68.10, $67.00-$67.05, $66.00-$66.15, $64.95-$65.10, $62.70-$62.85.

                                           Resistance:        $71.80-$72.20, $72.55-$72.66, $73.35-$73.55, $74.60-$75.00, $76.10-$76.25.

Oct heating oil      Support:             175.45-175.60, 174.20-174.35, 173.00-173.15, 171.65-171.80, 170.70-170.85.

                             Resistance:        182.00-182.20, 182.60-182.80, 185.60-185.70, 191.35-191.45, 192.30-192.45.

Oct Rbob                     Support:             169.70-169.85, 168.45-168.60, 168.00-168.15, 165.25-165.35, 160.00-160.20.

                                           Resistance:        177.30-177.50, 179.85-179.95, 183.50-183.65, 185.45-185.67, 187.20-187.31.

Oil Inventory Reports

      As expected, this week showed the largest decline in refinery utilization in a very long time, with rates falling by 1.36%.  That is normal, though, for mid-September, especially with a late Labor Day this year.  What was much less expected was to see builds across the board in the three main categories (crude, distillate and gasoline).  More years had seen draws in distillate, although six of the last eight years had seen builds in gasoline.  Crude oil imports were also surprising, increasing rather dramatically even as utilization dropped.  Because of hurricanes in 2004 and 2008 for the comparable week previous to the reports those years, there had been large declines in imports.  This report will cast long shadows for more than just a week.

     Distillate stocks are now 40.8 million bbls, or 31.38%, higher than a year ago.  Heating oil inventories are 13.1 mln bbls, or 34.75%, higher than they were a year ago.  Gasoline stocks are 20.6 mln bbls (up 10.70%) higher against a year ago.  Crude oil stocks are now 32.2 million bbls, or 10.61%, higher than a year ago.  Residual stocks are 6.2 mln bbls (15.98%) lower than a year ago, jet fuel stocks are 7.0 mln bbls, (17.86%) higher than a year ago.  Utilization is 18.88% higher than a year ago and 2.13% below the eight-year average.  It is 5.64% 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 26,109 contracts on Tuesday, when prices were higher.  That looks like heavy short-covering going into the last day of trading in the October contract.  There were reasons for the rise, but it was all short-covering, it seems.

      Heating oil open interest rose by 936 contracts on Tuesday, when prices were higher.  That looks like new buying, which would be supportive. 

      RBOB open interest fell by 541 contracts on Tuesday when prices were higher. That looks like net short-covering, which would be bearish.  It turns out to have been prescient.

      Natural gas open interest fell by 5,006 on Tuesday when prices were higher.  That looks like short-covering in gas, as well.  It is a negative development, although here it was not as forward-looking.

Tuesday’s Open Interest Changes:  

Crude 1,124,865  dn 26,109       Heat 316,481   up 936       RBOB 206,372  dn 541       Nat gas 710,301  dn 5,006           

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 were up a quarter yesterday, and this market’s ability to rise on a day when the rest of the oil complex was lower was a sign of genuine strength.  The added fact was that there was no real reason for buying yesterday – with yesterday being the key word in the sentence.  There may be general reasons for prices to rise, we are suggesting, but yesterday was nothing special from a natural gas bull’s perspective.  There was nothing fresh and compelling that lent any urgency to yesterday’s session as a time to buy.  Curious as it may sound, that is another reason to see this market in a new and more bullish light.  Taken in the context of yesterday’s general selloff, it is more bullish, still.

Dow Jones reported heavy short-covering ahead of the coming winter heating season.  This market has carried a large number of large speculative shorts, but we do not know yet if it was these positions that were being covered yesterday.  There are more than enough short holdings to be covered, though.  The real bottom line is that gas prices are starting to regain their price value in relation to crude oil.  The crude-to-gas ratio fell to 17.87-to-one yesterday, down from 27.10-to-one on September 3rd and the lowest ratio since August 5th.

In cash trading yesterday, Henry Hub prices were at $3.34-$3.59, up $0.02-$0.17 on the day (DJN).  SoCal prices were at $3.60-$3.73, up $0.02-$0.05 on the day.  El Paso Permian prices were up $0.02-$0.05 at $3.35-$3.43.  Katy prices were up $0.02-$0.07 at $3.33-$3.45.  Waha prices were up $0.04-$0.05 at $3.35-$3.45.  Transco 6 was up $0.07-$0.12 at $3.74-$3.82/mmBtu, according to Dow Jones News (DJN).

Palo Verde prices were last quoted at $29.50-$32.50/mwh.  Northeastern prices last traded at $30.00-$48.00.  Entergy was last at $31.50-$32.50.  Ercot was last at $27.45-$28.00/mwh.

Both Dow Jones and Bloomberg agree on their survey forecasts for this morning’s EIA underground storage figures.  They are forecasting a build of 69 bcf.  That is right on top of the five-year average of similar Friday’s, which our records put at 68.8 bcf.  Last year, we have a build of 51 bcf, while the amount to the same date as a year ago was apparently 54 bcf.  The eight-year average of similar Friday’s comes out to a build of a little more than 75 bcf.  It will be difficult to post an increase of less than we had a year ago, but the forecasts suggest that we might beat or equal the five-year average.  Over the next few weeks, we feel it will be important for the weekly builds to come in at or beneath the multi-year averages.  As long as we do not increase the surplus against the five-year average, there will be a chance that traders will be able to focus on other factors.  In the recent past, estimates for a build near the five-year average would have been taken as a bearish factor; yesterday, traders were able to look beyond that. 

Support is at $3.50-$3.53, $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 $3.85-$3.86, $3.92-$3.94, $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 up sharply yesterday, as many others were weak.

Dollars per million Btu

Oct Natural Gas:          Support:        $3.50-$3.53, $3.45-$3.46, $3.28-$3.32, $2.91-$2.93, $2.80-$2.82, $2.74-$2.75.

                                                    Resistance:     $3.85-$3.86, $3.92-$3.94, $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.  Expectations today are for a build of 69 bcf.

EIA Report

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

News & Views

Without fresh support from equities or currencies, oil’s fundamentals look bearish today.

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 dropped to new recent lows before rallying steeply yesterday, after hitting the 67.50 euro cents objective on Tuesday.  This is a reversal, although that does not necessarily mean that prices are done moving lower.

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: Five-Day Chart

The DJIA lost 81 points yesterday, net, but the selloff was nearer 165 points from the day’s high.

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

A Look at Gasoline Supply & Demand

Thirteen-week demand is at 9.145 million bpd, down 1.57% against last year.  Thirteen-week supply is at 10.033 mln bpd, up 0.96%.  Thirteen-week implied demand is at 9.988 mln bpd, down 2.55%.

A Look at Distillate Supply & Demand

Thirteen-week demand is at 3.353 million bpd, down 18.51% against last year.  Thirteen-week supply is at 4.208 mln bpd, down 6.33%.  Thirteen-week implied demand is at 4.003 mln bpd, down 9.93%.

A Look at Refinery Utilization

Utilization is 18.88% higher than a year ago and 2.13% below the eight-year average.  It is 5.64% lower than the four-year, pre-Katrina average. 

Recommendations for Specific Market Segments