Prices for October 22nd, 2009

Market Review for Thursday    

IL prices were lower yesterday as a steady dollar through most of yesterday’s session allowed the fundamentals in the oil complex to shine through – briefly.  Equities advanced steadily yesterday, ending the day with gains of almost 132 points in the DJIA, although the advance was slow.  The dollar weakened at the end of the trading day, eventually bringing the shutters down on the fundamentals. 

The fundamentals are based on two separate factors – supply and demand.  And, while the supply side of the equation has garnered the lion’s share of attention recently, it is the demand side that briefly shone through on yesterday’s trading.  As we have noted, demand has been weakening, rather dramatically in comparison with year-ago levels.  In a somewhat oblique way, yesterday’s EIA natural gas underground storage numbers highlighted one aspect of this week’s DOE demand weakness.  While the natural gas injection figure fell significantly in reaction to colder weather last week, we saw little evidence that the cold increased distillate use.  It will probably be a delayed reaction that will become apparent in next week’s report.

Distillate is used differently than natural gas is, of course.  One actually needs to move gallons physically into boilers, while natural gas is piped rather instantly.  Nonetheless, one has to take some notice of the steep drop in this year’s gas injection figure, in relation to previous years.  And that number casts the lack of response in distillate demand in much sharper relief, we feel. 

Traders were also talking about the possibility of Opec increasing output in response to higher prices.  Most observers and most Opec oil ministers do not believe that there will be any increase in the cartel’s output, at least not officially.  The ministers meet next in Luanda, Angola, on December 22nd.  Opec Secretary-General Abdalla Salem el-Badri has said that it is unlikely that the cartel will raise production unless inventories “go back to the normal level, if we see there is real world economic growth.” Opec’s idea of “normal” inventories is for them to be tighter than most consumers would like to see.

Of course, higher prices tend to bring out more production from Opec members, just not officially sanctioned.  Officially, the cartel also wants oil stored on tankers to be brought down considerably before it increases quotas, again.  At the same time, though, a number of Opec countries understand that higher oil prices act as a drag on economic growth. 

Technicals

           Oil prices were all lower yesterday, but they all ended near the day’s highs, suggesting that yesterday’s activity was corrective.  Objectives higher remain in place, with crude 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.

Dollars per barrel

Above:  Crude oil prices have broken out to the upside this week, suggesting a new leg higher, with objectives to $99 and $107.

December crude oil now has buy-stops over $82.00, $84.83, $85.13, $89.82, and $90.99.  Sell-stops are under $79.85, $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 206.40, 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 200.00, 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. 

Football: The bulls lost two yards on first down, making it second and 12 to go. 

Technical Support & Resistance

Dec crude oil                        Support:             $79.85-$80.00, $77.64-$77.70, $76.80-$77.00, $74.40-$74.55, $72.80-$73.00.

                                           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:             206.40-206.55, 202.00-202.10, 199.80-200.00, 193.90-194.10, 192.15-192.30.

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

Nov Rbob                     Support:             200.00-200.15, 195.37-195.40, 192.00-192.20, 186.25-186.35, 183.90-184.05.

                                           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 grew by 32,918 contracts on Wednesday, when prices were higher.  That looks like very heavy, new buying, which would be supportive.  This reflected the first day after the November expiration.

      Heating oil open interest was down by 541 contracts on Wednesday, when prices were higher.  That looks like short-covering on balance, pushing heating oil quotes higher.  It is a relatively small figure, though.

      RBOB open interest rose by 4,130 contracts on Wednesday when prices were higher.  That looks like decent, new buying, which would be supportive. 

      Natural gas open interest rose by 1,126 on Wednesday when prices were lower.  That looks like net, new selling, which would be bearish.  It is a relatively small or minor number in this market. 

Wednesday’s Open Interest Changes:  

Crude 1,213,039  up 32,918       Heat 317,059   dn 541       RBOB 237,407  up 4,130       Nat gas 719,953  up 1,126       

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

This week’s EIA underground storage report came in right on expectations, with a build of 18 bcf, on estimates for a build of 18-19 bcf, suggested by surveys conducted by Dow Jones and Bloomberg.  We now have 397 bcf more (11.90%) than a year ago.  Stocks are now 432 bcf and 13.08% above the five-year average.  For the week ended August 21st, stocks were 18.82% above year-earlier levels and 18.13% above the five-year average for that time of year.  The storage picture is improving, from a bullish perspective. 

Despite that fact, which we must be quick to add is only one perspective, there was selling yesterday as some longs decided to take profits on holdings based on an increase in underground storage figures.  From that perspective, storage figures increased from already record high levels.  Since we believe that most of the surplus had already been discounted during the long bear market from July, 2008 through early September, this year, we see a diminishing surplus (against both last year and the five-year average) in an environment that encourages people to store gas until time catches up with higher future prices.

In cash trading yesterday, Henry Hub prices were at $4.90-$5.06, up $0.08-$0.23 on the day (DJN).  SoCal prices were at $5.16-$5.30, up $0.00-$0.23 on the day.  El Paso Permian prices were up $0.03-$0.10 at $4.94-$5.08.  Katy prices were up $0.09-$0.13 at $4.88-$5.04.  Waha prices were up $0.10-$0.12 at $4.90-$5.09.  Transco 6 was up $0.10-$0.13 at $5.28-$5.50/mmBtu, according to Dow Jones News (DJN). 

Palo Verde prices were last quoted at $46.50-$48.75/mwh.  Northeastern prices last traded at $39.00-$56.50.  Entergy was last at $35.00-$37.00.  Ercot was last at $38.25-$39.15/mwh. 

There are always at least two different ways of looking at underground storage levels in this market, and we find it hard to look at them in isolation from the carrying costs built into futures.  Right now, they are quite high, and that means that there is a strong reason to keep adding to the amount held underground.  With that as a backdrop, last week’s build was clearly on the low side in comparison with what we have seen historically.  Given the strong financial incentives offered by the market to store gas, we have to see this latest injection number as being supportive.  It suggests to us that the market was incapable to producing more, and that it used quite a bit because temperatures were colder.

Technically, yesterday’s decline puts some pause in this market and in its ability to continue higher on its way to objectives higher, to $5.99 and up to $6.90.  We may be in for a period of choppier trading. 

Support is at $4.90-$4.91, $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

This week’s EIA report showed a build of 18 bcf on expectations for a build of 18-19 bcf.  Stocks are now 397 bcf higher than a year ago, against a surplus of 450 bcf a week ago, a surplus of 473 bcf two weeks ago and a surplus of 491 bcf three weeks ago.  Stocks are now 11.90% higher than a year ago.  They are 432 bcf and 13.08% 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 were for builds of 18-19 bcf.

EIA Report

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

News & Views

Oil traders remain torn between viewing it as an asset class or as a commodity with dreadful demand factors, right now.  We feel that this dichotomy is slowly coming to a head in this market, and that makes us cautious, here.

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 touched new lows yesterday, although prices were only slightly lower on the day.  Nonetheless, the trend lower continues to eat away at the value of the greenback as it acts to keep oil prices stronger than they would otherwise be.  There are still objectives to as low as 65.20 euro cents.

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 was up almost 132 points yesterday, after Wednesday reversal day lower.  The bulls seem to have ended yesterday’s session in control, again.

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

A Look at Inventories

Distillate stocks remain at their highest levels ever for this time of year (or really any time of year).

A Look at Imports

Thirteen week average crude oil imports continue to reflect a weak economy.

Recommendations for Specific Market Segments

September Average Monthly Nymex Prices to Follow →

Average Monthly Nymex Settlement Prices

Crude Oil

The Nymex average crude oil settlement price in September was the third highest for 2009, but was the lowest September average since 2006.  It was above every September average from 1983 to 2006, though.  It was $34.29/bbl (33.04%) lower than the average seen in 2008.  It was $41.16 (more than the highest price ever seen between 1983 and May, 2004) above the average for September, 2003 (145% of that price).  It was the seventh out of eight years that the September average was higher than the February average.

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 September was the third highest seen so far in 2009 and was the lowest September since 2006.  This year’s September average was $1.1724 and 39.99% lower than a year ago.  At the same time, though, it was higher than every September average between 1979 and 2005.  It was more than a dollar a gallon higher than the average seen in September, 2003.

Heating Oil               in cents per gallon

Cents per gallon

Gasoline

The September average Nymex gasoline (now RBOB) settlement price was the fourth highest yet seen in 2009.  It was 86.76 cents a gallon lower than the average a year earlier, and was the lowest September average seen in three years.  It was still higher than every September average from the contract’s birth through 2004. 

In September, 2009, Americans spent $10.411 billion less on gasoline than they had a year earlier.  That means that Americans have spent about $136.911 billion less on gasoline over the first nine months of 2009 than they did over the first nine months of 2008.  That is effectively a tax rebate of that amount, which translates into $456, so far, for each American man, woman and child, this year.  With gasoline representing about half the barrel, that comes to roughly $912 as the running rebate from oil so far this year.  It is a major factor behind this year’s recovery, but it could have been so much more if prices had stayed at the lower prices seen in the first quarter.

Gasoline                    in cents per gallon

Cents per gallon

Natural Gas

The average Nymex natural gas price for September was the second lowest so far this year.  It was less than half the average for September, 2008, and was the lowest September average since 2001 (not in our table).  It was the ninth lowest monthly average in the table below, and is considerably lower than most of the others (in 2002) in real inflation-adjusted terms.  The low prices of the second and third quarters will cast long shadows over future production of gas.

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

Copyright Cameron Hanover, 2009

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