Prices for October 21st, 2009

Market Review for Wednesday 

QUITIES prices were higher for most of yesterday’s session, but had a late sneak attack by sellers, leaving a kind of reversal day on the charts.  Oil prices settled before the selloff in the stock market, represented by a Dow Jones Industrial Average (DJIA) that coughed up more than 92 points by the final bell. 

This week’s DOE report was ostensibly as advertised; crude oil stocks grew, refinery utilization rebounded slightly, and refined products stocks dropped.  So, the supply side did what it was expected to do.  On top of that, all three major stock categories (crude, distillate, gasoline) had reductions in their year-on-year surpluses.  The distillate oil stock surplus dropped from 43.0 million barrels (33.67%) to 42.3 mln bbls (33.15%).  The gasoline stock surplus dropped from 17.9 mln bbls (9.35%) to 14.5 mln bbls (7.53%).  The crude oil surplus went from 31.6 mln bbls (10.32%) to 30.9 mln bbls (10.03%).  On the inventory and supply level, this week’s report was bullish on its first two, maybe even three levels, with the first level being the headlines and the second level being a slightly deeper dig of the topsoil of the report.

Buried in the demand figures, distillate consumption for the week dropped by 7,000 bpd and the four-week average is now down 12.12%, making it the sixth consecutive week in which distillate demand has been lower than a year ago by an even larger percentage than the week before.  Six weeks ago, four-week distillate demand was down 5.56%.  Total products supplied have also turned weaker, after a brief period of picking up.  Three weeks ago, four-week total demand was 959,000 bpd and 5.31% higher than a year earlier.  It has fallen by almost 200,000 bpd from that week, and is now 23,000 bpd and 0.12% lower than a year ago.

Only gasoline demand remains reasonably brisk in comparison with year-ago aggregates.  But, even though the four-week average is up 100,000 bpd, the percentage change has fallen from up 5.38% to up 4.23%.  It is still the strongest part of the demand picture, although that is unlikely to remain the case as we move closer every day to the first quarter low point in consumption.  And higher prices are hardly going to help retailers as we head into the holidays with pump prices heading towards levels a dollar higher than last December and January’s lows.  The biggest disappointment was distillate use during a cold snap last week, during which temperatures dropped to figures typically seen in mid-December.  Demand is still pathetic.

Technicals

           The oil complex jumped dramatically yesterday, but it seems to have gotten out in front of equities, the dollar and its own fundamentals.  It had the look of short-covering, urgent covering.  Crude has objectives to $96.22, $99.00 and $107.35.  Heating oil has objectives to 214.50 and 224.25 and there is resistance in gasoline up to 211.24.

Cents per gallon

Above:  Heating oil prices seem to be in an upward trending channel, longer term.  Objectives are to 214.50 and 224.25.

December crude oil now has buy-stops over $82.00, $84.83, $85.13, $89.82, and $90.99.  Sell-stops are under $77.64, $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 212.12, 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 207.51, 208.15, 208.55, 211.24, 214.00, 222.70, and 228.86.  Sell-stops are under 195.37, 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.  Yesterday’s lows are now critical support.

Football: The bulls gained 22 yards on second and 15 to go, giving them another first down. 

Technical Support & Resistance

Dec crude oil                        Support:             $77.64-$77.70, $76.80-$77.00, $74.40-$74.55, $72.80-$73.00, $72.00-$72.15.

                                           Resistance:        $81.90-$82.00, $84.70-$84.83, $85.00-$85.15, $89.70-$89.82, $90.85-$91.00.

Nov heating oil     Support:             202.00-202.10, 199.80-200.00, 193.90-194.10, 192.15-192.30, 188.75-188.85.

                             Resistance:        212.00-212.12, 215.95-216.07, 224.15-224.25, 225.65-225.80, 226.90-227.05.

Nov Rbob                     Support:             195.37-195.40, 192.00-192.20, 186.25-186.35, 183.90-184.05, 179.20-179.35.

                                           Resistance:        206.80-207.00, 207.40-207.51, 208.00-208.15, 208.40-208.55, 211.10-211.24.

Oil Inventory Reports

      This week’s DOE report was taken largely at its surface values, which primarily reflect supply statistics; supplies have been falling.  In the last two weeks, the year-on-year surpluses have fallen from 44.1 mln bbls to 42.3 mln bbls in distillate stocks, from 24.2 mln bbls to 14.5 mln bbls in gasoline stocks and from 33.1 to 30.9 mln bbls in crude oil stocks.  These declines are in addition to a net decline of 3.9% in utilization over the past two reports.  But, a very key provision of this week’s report has been missed: While supplies have dropped substantially, demand has fallen even more in relation to levels seen a year ago.  The economic recovery was supposed to improve demand.  So far, any bullish development has come only from supply losses.

     Distillate stocks are now 42.3 million bbls, or 33.15%, higher than a year ago.  Heating oil inventories are 12.2 mln bbls, or 30.89%, higher than they were a year ago.  Gasoline stocks are 14.5 mln bbls (up 7.53%) higher against a year ago.  Crude oil stocks are now 30.9 million bbls, or 10.03%, higher than a year ago.  Residual stocks are 5.0 mln bbls (12.76%) lower than a year ago, jet fuel stocks are 7.0 mln bbls, (18.37%) higher than a year ago.  Utilization is 3.70% lower than a year ago and 6.30% below the eight-year average.  It is 9.40% 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 20,813 contracts on Tuesday, when prices were lower.  That looks like very heavy, long liquidation, which would be supportive.  This still reflected the November expiration.

      Heating oil open interest was up by 2,823 contracts on Tuesday, when prices were lower.  That looks like new selling, which would be bearish. 

      RBOB open interest fell by 447 contracts on Tuesday when prices were mixed.  That looks like light and minor confusion and does not seem significant in comparison with recent moves.

      Natural gas open interest fell by 10,629 on Tuesday when prices were lower.  That looks like heavy long liquidation, which would be supportive.

Tuesday’s Open Interest Changes:  

Crude 1,180,121  dn 20,813       Heat 317,600   up 2,823       RBOB 233,277  dn 447       Nat gas 718,827  dn 10,629     

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 dropped more than six cents per million Btu (mmBtu) despite new highs in equities and oil markets.  This represents a slight departure from recent activity, which has been more in line with these other markets than opposed in direction.  More than anything else, it seems to have been the more or less weekly round of profit-taking ahead of the weekly EIA report, which is expected to establish fresh, record highs in underground storage figures.  Dow Jones is calling for a build of 19 bcf, while Bloomberg is looking for a median build of 19 bcf and average build of 18 bcf within a range of builds from 5 bcf to 27 bcf.  Since storage levels are already at record levels, any increase will establish a new record high for underground storage.  Even so, this week’s estimates are well below the five-year average build of 60 bcf for the same dates, or 59.2 bcf for similar Friday’s.  Storage capacity is estimated at 3.889 tcf, and is now at 3.716 tcf.

Each week, we tend to see traders reduce their long positions ahead of the figures.  Then, after they are released, traders have typically returned to the buy side in response to cold temperature forecasts.  That has been the pattern since September.

In cash trading yesterday, Henry Hub prices were at $4.67-$4.98, up $0.18-$0.27 on the day (DJN).  SoCal prices were at $4.93-$5.30, up $0.13-$0.36 on the day.  El Paso Permian prices were up $0.23-$0.27 at $4.91-$4.98.  Katy prices were up $0.23-$0.25 at $4.75-$4.95.  Waha prices were up $0.20-$0.25 at $4.80-$4.97.  Transco 6 was up $0.19-$0.26 at $5.15-$5.40/mmBtu, according to Dow Jones News (DJN). 

Palo Verde prices were last quoted at $45.75-$47.00/mwh.  Northeastern prices last traded at $37.25-$57.05.  Entergy was last at $34.00-$36.50.  Ercot was last at $38.50-$38.75/mwh. 

Yesterday’s decline looks like a minor correction ahead of this week’s underground storage figures.  As it is, though, today’s statistics have the potential of turning out to be supportive, because estimates are so far below both last year’s build and the average of builds seen over the past five years.  If today’s figures come out anywhere near expectations – or even 20 bcf above them – there will be substantial changes in the surpluses against last year and against the five-year average.  We would not be surprised to see that kind of math working out to this market’s advantage before the report is released this morning. 

Tuesday’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 $5.07-$5.08, $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, $5.30-$5.32, $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:         $5.07-$5.08, $4.85-$4.86, $4.67-$4.69, $4.43-$4.45, $4.35-$4.39, $3.73-$3.75.

                                                    Resistance:     $5.19-$5.24, $5.30-$5.32, $5.55-$5.57, $5.62-$5.63, $5.82-$5.86, $5.96-$6.01.

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.  This week’s estimates suggest a build of 18-19 bcf today, which is well below normal.

EIA Report

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

News & Views

There was plenty to be bullish about in this week’s DOE figures, but the anticipated linkage between higher equities and oil demand growth has failed (miserably) to occur.  Supplies have fallen, but demand has recently dropped, in some cases even more.  Oil prices have risen since March on the assumption that an improving economy would increase oil demand, and that simply has not happened, at least not yet in any sustained across-the-board way. 

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 never really built up much of a head of steam on the upside.  There are still objectives lower to 65.80 and 65.20 euro cents.  The trend is still clearly pointed lower here, and that dilutes rallies in this market and the impact of a higher dollar on oil prices.

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 more than 92 points yesterday, forming what looks like a potential key reversal.  If it is not a key reversal, it is a reversal, but higher equities did help oil prices move higher early in the session.  Equities sold off late in the day.

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

A Look at Gasoline Supply & Demand

Thirteen-week demand is at 9.137 million bpd, up 0.01% against last year.  Thirteen-week supply is at 9.863 mln bpd, down 0.74%.  Thirteen-week implied demand is at 9.957 mln bpd, down 1.85%.

A Look at Distillate Supply & Demand

Thirteen-week demand is at 3.414 million bpd, down 15.51% against last year.  Thirteen-week supply is at 4.154 mln bpd, down 3.99%.  Thirteen-week implied demand is at 4.050 mln bpd, down 9.66%.

A Look at Refinery Utilization

Utilization is 3.70% lower than a year ago and 6.30% below the eight-year average.  It is 9.40% lower than the four-year, pre-Katrina average. 

Recommendations for Specific Market Segments