Prices for October 20th, 2009

Market Review for Tuesday        

IL prices went through much of the same pattern that had been seen the previous day in overnight trading, with buying followed by selling, and then followed by buying again before the opening of the open outcry session.  It did not last, though, and selling was the dominant feature throughout yesterday’s normal trading session. 

It was always going to be a day likely to see a correction, anyway.  After eight consecutive advances in crude oil and heating oil, with six days higher in gasoline, the probability was that there would be profit-taking on long positions ahead of the November crude oil contract expiration and ahead of last night’s API report and this morning’s DOE report.  As it turned out, though, oil prices were under pressure from corrections in equities and currencies.  The DJIA gave back almost 51 points yesterday and the dollar rallied, and those factors helped oil prices to sell off.  As we noted, we thought we should have had a correction in oil prices, anyway, but we cannot say now whether yesterday’s decline came from profit-taking ahead of expiration and reports or from the corrections in equities and currencies.  The significance extends to this morning’s session.

Last night’s API report showed a build in crude oil stocks, draws in refined products inventories and a mild increase in refinery utilization.  All of these fit neatly into the consensus of expectations.  The only surprise was the decline in crude oil imports, although it makes sense, given the fact that refineries have so many units down for maintenance or for financial reasons.  Nonetheless, we found it surprising, given how much lower crude oil imports are than the average for this time of year.  Even with another decline in imports, crude oil stocks were up by more than most are expecting for this morning’s DOE report.

Weak housing figures helped set the table yesterday for the correction in equities prices, but the stock market was probably ready for a breather, anyway.  As we have noted before, here, October is not exactly the best month to initiate long positions in either equities or in oil, and the history books are filled with examples of major tops reached this month.  The Commerce Department reported fewer housing starts than had been predicted, and that started a chain reaction of investors taking profits from stock markets and commodities markets.  According to Dow Jones, some of that money went back into the US dollar, which still represents safety and lower risk, at least in theory.

Technicals

           The oil complex was lightly lower yesterday, but objectives higher remain intact.  Crude still has objectives to $81.73, $96.22, $99.00 and $107.35.  Heating oil has objectives to 214.50 and 224.25.  There is resistance in gasoline up to 211.24.  Crude oil and heating oil prices ended their runs at eight days; gasoline was up for a seventh day, though.

Cents per gallon

Above:  Gasoline’s front month November was up 5 points yesterday, making it seven days higher in a row.

December crude oil now has buy-stops over $80.40, $84.83, $85.13, $89.82, and $90.99.  Sell-stops are under $78.00, $76.80, $74.75, $74.40, $72.80, $72.00, $70.60, $68.88, $68.00, $65.80-$66.20, $64.95, and $62.70.  November heating oil has buy-stops over 205.80, 209.40, 216.07, 225.80, 227.05, 229.08, 238.95, 249.62, 251.50, 256.48, 265.89, 273.20, 288.50, 295.00, 299.71, and 303.00. Sell stops are under 202.00, 199.80, 193.90, 192.15, 188.75, 186.50, 182.63, 177.00, 176.68, 173.75, 171.10, 170.35, 168.60, 167.65, 166.90, 165.85, and 163.75.  November RBOB has buy-stops over 199.50, 198.36, 200.00, 207.00, 208.15, 208.55, 211.24, 214.00, 222.70, and 228.86.  Sell-stops are under 195.95, 192.10, 186.25, 183.90, 179.20, 177.30, 175.14, 171.40, 170.25, 168.85, 163.00, 161.25, 160.00-160.10, 150.00, and 135.20.

Football: The bulls lost five yards on first down, making it second and 15 to go.

Technical Support & Resistance

Dec crude oil                        Support:             $78.00-$78.30, $76.80-$77.00, $74.40-$74.55, $72.80-$73.00, $72.00-$72.15.

                                           Resistance:        $79.85-$80.05, $84.70-$84.83, $85.00-$85.15, $89.70-$89.82, $90.85-$91.00.

Nov heating oil     Support:             202.00-202.20, 199.80-200.00, 193.90-194.10, 192.15-192.30, 188.75-188.85.

                             Resistance:        205.65-205.80, 209.20-209.40, 215.95-216.07, 225.65-225.80, 226.90-227.05.

Nov Rbob                     Support:             195.95-196.15, 192.00-192.20, 186.25-186.35, 183.90-184.05, 179.20-179.35.

                                           Resistance:        199.35-199.50, 206.80-207.00, 208.00-208.15, 208.40-208.55, 211.10-211.24.

Oil Inventory Reports

      This week’s DOE report has had mixed results for refined products, with four years higher and four years lower over the last eight years.  The overall result was that stocks declined slightly over the eight-year period.  Crude oil stocks have been higher in five of the last eight years, and utilization actually bounced back up in six of the last eight years.  Crude oil imports have been lower on average over the last six years, but they have averaged 9.636 million bpd, which is significantly higher than last week’s reported figure.  If this week follows historical trends, we should see a bounce back up in both crude oil imports and in refinery utilization.    

     Distillate stocks are now 43.0 million bbls, or 33.67%, higher than a year ago.  Heating oil inventories are 12.3 mln bbls, or 31.45%, higher than they were a year ago.  Gasoline stocks are 17.9 mln bbls (up 9.35%) higher against a year ago.  Crude oil stocks are now 31.6 million bbls, or 10.32%, higher than a year ago.  Residual stocks are 3.9 mln bbls (10.00%) lower than a year ago, jet fuel stocks are 7.4 mln bbls, (19.53%) higher than a year ago.  Utilization is 1.30% lower than a year ago and 4.39% below the eight-year average.  It is 7.00% 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 29,720 contracts on Monday, when prices were higher.  That looks like very heavy, net short-covering, which would be bearish.  A large part of the short covering came ahead of yesterday’s November contract expiration.

      Heating oil open interest dropped by 1,308 contracts on Monday, when prices were higher.  That looks like short-covering and is bearish. 

      RBOB open interest grew by 8,067 contracts on Monday when prices were higher.  That looks like heavy, new buying, which would be bullish.  Open interest has jumped 40,428 since October 7th.  That is a lot of new buying.

      Natural gas open interest fell by 265 on Monday when prices were higher.  That looks like light short-covering, which would be bearish.  The most recent buying has come from short-covering.

Monday’s Open Interest Changes:  

Crude 1,231,584  dn 29,720       Heat 314,777   dn 1,308       RBOB 233,724  up 8,067       Nat gas 729,456  dn 265       

CFTC Commitments of Traders for Nymex  (for the period ended Tuesday, Oct 13th)   

 As of Oct 13th:                 Long                   Short:

Crude oil                    252,327               183,491                           -contracts held by speculators:  1.38 long

                                          601,526               664,318                               held by the trade

                                          107,760               113,804                               held by small specs and hedgers.

Spreads….up 22,715 contracts   The ratio went from 1.22-to-one long to 1.38-to-one over the last two weeks.

   Large speculators added 16,758 new long contracts and covered 2,072 shorts over the week under review.  Commercials liquidated 30,137 longs and covered 11,632 shorts.  Small specs and hedgers added 5,340 longs and added 5,665 shorts.  Open interest grew by 14,676 contracts as prices were up $3.27/barrel.  That looks like good, new buying, and follows a week of heavy buying over the previous week.  A large number of new longs bought ahead of last week’s breakout to the upside. 

   The average large speculator has 2,175 long contracts (116 accounts, up 10 accts) which is down 6 contracts, and 1,929 shorts (111 accounts, up 3), down 276 contracts.  Commercials held 7,161 longs (84, up 1), down 449 contracts and 6,920 shorts (96, up 1), down 195 contracts.  Reportables held 3,877 longs (298, up 20 acct), down 246 contracts, and 4,105 shorts (280 accts, up 10), down 119 contracts.  Reportable positions were diluted by new accounts.

Heating oil                   52,000                 15,543                           - contracts held by speculators:  3.34 to 1 long

                                          181,844               230,081                              held by the trade.

                                            40,570                 28,790                               held by small specs and hedgers.

Spreads….dn 2,891 contracts.    The ratio of large speculative longs to shorts went from 2.22-to-one to 3.34-to-one in 2 weeks.

       Large speculators added 2,460 longs and covered 1,573 shorts.  Commercial accounts liquidated 3,072 longs and added 7,944 shorts.  Small speculators and hedgers added 5,292 longs and covered 1,691 shorts.  Open interest grew by 1,789 contracts as prices rallied 10.92 cents.  That looks like net, new buying, which would be bullish.  Small specs and hedgers were the biggest buyers, with large speculators also buying.  Commercials sold into the higher prices.

       The average large speculative long is holding 1,486 contracts (up 247 lots on 35 accounts, dn 5), while the average short has 536 contracts (dn 54 lots on 29 accts, unch).  The average commercial long is holding 2,798 contracts (dn 91 contracts on 65 accts, up 1) compared to the average short holding of 3,027 contracts (up 25 lots on 76 accts, up 2).  The average reportable position is 2,139 long (up 22 lots on 126 accts, dn 3) while the average short holding is 2,164 (up 43 lots on 130 accts, dn 1). The number of contracts held by reportable accounts increased as the number of accounts dropped.

Rbob Gasoline            53,162                13,457                          -contracts held by speculators:  3.95 to 1 long

                                           113,496              155,788                             held by the trade.

                                             19,119                16,532                              held by small specs and hedgers.

Spreads…up 6,141 contracts   The ratio of large speculative longs to shorts went from 2.80-to-one to 3.95-to-one in 2 weeks.

     Large speculative holdings grew by 2,985 longs and fell by 1,406 shorts over the latest week. Commercial holdings fell by 4,317 longs and rose by 3,397 shorts.  Small speculators and hedgers’ positions grew by 4,762 longs and grew by 1,439 shorts.  Open interest rose by 9,571 contracts as prices rallied 5.91 cents, which looks like net, new buying.  Small specs and hedgers were the best buyers, with large speculators buying and covering shorts.  Commercials sold into higher prices, selling fresh shorts and liquidating longs. 

   The average holdings are 1,266 contracts for each large speculative long (42 accts, unch accts) and 538 for each large speculative short (25, dn 4).  The average commercial long now has 1,669 contracts long (68, dn 1) and 1,791 short (87, up 4). Average reportable holdings are 1,444 long (129, dn 1) against 1,464 short (129, up 3).  There was 1 less reportable long  account and 3 more short accounts. The average reportable long holding was up 48 contracts while the average short gained 30.

Naturalgas                99,332               246,375                           -contracts held by speculators:  2.48 to 1 short

                                         310,133               202,908                               held by the trade.

                                           90,316                 50,498                           held by small specs and hedgers.

Spreads…up 35,868 contracts    The ratio of large speculative shorts to longs went from 3.06-to-one to 2.48-to-one in 3 weeks.

  Large speculative holdings were up by 5,469 longs and were up by 10,412 shorts over the latest week. Commercial accounts were up 7,517 longs, and were up 4,497 shorts, while small speculators and hedgers added 4,118 longs and added 2,195 shorts.  Open interest grew by 52,972 contracts as prices fell 29.2 cents.  That looks like heavy selling, and large speculators sold this market heavily.  Small specs and hedgers and commercials were also selling, although they both bought more than they sold.  Open interest has been increasing in general lately as part of the bigger bull move in natural gas prices.

  The average large speculator has 1,226 contracts (81) while each large speculative short is holding 2,768 shorts (89).  The average commercial long now has 3,782 contracts long (82) and 2,941 short (69). Average reportable holdings are 2,800 long (234) long and 3,248 short (214).  There are 9 more long accounts and 13 more short accounts in the reportable category, which increased the average long holding by 105 contracts and increased the average short holding by 43 contracts.  There were six more long accounts and five more short accounts in the large speculative category, which cut holdings by 26 and 41 contracts.

Natural Gas & Utility Generation

Natural gas prices jumped more than 32 cents yesterday, as weather forecasts once again turned towards the colder side.  As we have noted here recently, how this month ends could (and probably will) establish a pattern that will be with us through winter and into spring.  Yesterday’s forecast was calling for below-normal readings at the end of October and into early November.  It is supposed to be almost balmy today in the greater Metropolitan New York area, but our own guess is that forecasts suggesting we could even see readings of 70° today will turn out to be optimistic.  That is what happens when readings trend colder.  The upper forecasts just don’t make it.

The fact that prices are reacting as strongly as they have been recently to temperature forecasts tells us a good deal about this market.  The existing surplus is already priced in; it was discounted during the 14 months from July 2008 to the start of September, 2009.  Because that is the case, prices are now reacting to indications that the coming heating season will be colder than usual, which would eat into inventories held in storage. Right now, a colder winter is looking increasingly likely.

In cash trading yesterday, Henry Hub prices were at $4.49-$4.71, up $0.31-$0.41 on the day (DJN).  SoCal prices were at $4.80-$4.94, up $0.40-$0.41 on the day.  El Paso Permian prices were up $0.41-$0.43 at $4.64-$4.75.  Katy prices were up $0.38-$0.42 at $4.52-$4.70.  Waha prices were up $0.36-$0.38 at $4.60-$4.72.  Transco 6 was up $0.19-$0.21 at $4.96-$5.16/mmBtu, according to Dow Jones News (DJN). 

Palo Verde prices were last quoted at $42.25-$45.00/mwh.  Northeastern prices last traded at $35.00-$52.25.  Entergy was last at $35.00-$36.00.  Ercot was last at $36.25-$37.25/mwh. 

Moves like yesterday’s tell us how much this market has changed in just six or seven weeks.  While the premiums commanded by December and January futures are not as large as he one from October to November, they are still significant.  And their existence is one reason why storage levels continue to grow.  It makes sense to buy gas today and put it into storage (if one can find any available) to wait for higher prices to follow.  This premium between months could also keep withdrawals low during November, although that could well turn out to be a blessing, if temperatures remain on their current trend towards the colder than normal. 

Yesterday’s advance gives us another upside breakout and it gives us objectives to $5.78 and potentially all the way to $7.03.  We already had objectives to $5.99 and up to $6.90, so this reinforces objectives higher. 

Support is at $4.85-$4.86, $4.67-$4.69, $4.43-$4.45, $4.35-$4.39, $3.73-$3.75, $3.66-$3.68, $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, and $2.21-$2.24.  Resistance is at $5.19-$5.24, $5.55-$5.57, $5.62-$5.63, $5.82-$5.86, $5.96-$6.01, $6.15-$6.17, $6.34-$6.37, $6.65-$6.69, $6.90-$6.94, $7.01-$7.04, $7.28-$7.31, and $7.34-$7.36.

Natural gas prices were slightly higher yesterday.

Dollars per million Btu

Nov Natural Gas:          Support:         $4.85-$4.86, $4.67-$4.69, $4.43-$4.45, $4.35-$4.39, $3.73-$3.75, $3.66-$3.68.

                                                    Resistance:     $5.19-$5.24, $5.55-$5.57, $5.62-$5.63, $5.82-$5.86, $5.96-$6.01, $6.15-$6.17.

EIA Weekly Storage Figures

Last week’s EIA report showed a build of 58 bcf on expectations for a build of 52-53 bcf.  Stocks are now 450 bcf higher than a year ago, against a surplus of 473 bcf a week ago, a surplus of 491 bcf two weeks ago and a surplus of 509 bcf three weeks ago.  Stocks are now 13.78% higher than a year ago.  They are 474 bcf and 14.62% above the five-year average.

The five-year average for this week was a build of 59.2 bcf, while the eight-year average was a build of 54.75 bcf.  Last year’s build was 70 bcf.

EIA Report

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

News & Views

This morning’s DOE report is still the main event, but it is difficult to predict whether the fundamentals can outpoint moves in equities or currencies.  Clearly, if the report and equities and currencies all suggest the same outcome, one would expect to see that.  If they are at odds, though, it is hard to say which signal the market will follow.  At this stage, it is hard to bet against equities or currencies as being the dominant factors in market movements.

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 was lightly higher yesterday, although prices sold off late in the day to limit gains.  There are still objectives lower to 65.80 and 65.20 euro cents, but yesterday’s early advance helped oil prices sell off slightly.  Nonetheless, the trend remains lower here and it will take time to build a bottom.

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 dropped almost 51 points yesterday, although it is still above 10,000. The trend remains higher … but it is October.

Source:  http://money.cnn.com/quote/chart/chart.html?symb=djia&sid=1643&time=6mo&Submit1=Refresh

A Look at Jet Fuel

US Gulf jet fuel prices have made new recent highs, which could suggest higher quotes to come.

Jet fuel prices remain depressed against crude oil quotes.

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