Prices for October 29th, 2009

Market Review for Thursday    

UST as it looked like everything was on its way t o lower levels, the stock market advanced nearly 200 points and the dollar took a roundhouse to its jaw.  The oil complex saw its prices shoot higher as a result of the big moves seen in its alter ego markets, with the third quarter increase in GDP being the primary motive behind higher quotes in the DJIA and lower quotes in the US dollar.  GDP rose by 3.5%, above estimates for growth of 3.2%, and that brought the bulls out of hiding and back to the table for another heaping helping of risk, with all the fixings.  And, after their recent regurgitation, there was plenty of room to gobble up everything laid out on the tablecloth.  This rush back to the buffet left everyone paying in dollars, and the dollar index dropped from 76.228 late on Wednesday to 75.993 yesterday.  This week’s DOE report had convinced fundamentally-oriented traders to get short in the oil markets, and they were covering in the face of heavy buying by index funds and ETF money yesterday.  Once again, we are back to talking about resistance overhead and economic recovery.

Equities received an added boost from the latest unemployment figures, which showed a decline of 148,000 to 5.8 million, its lowest level since the week ended March 21st, Bloomberg reported yesterday.  Initial claims fell 1,000 to 530,000, which was a disappointment.  Analysts had been looking for initial claims of 525,000.  The four-week average of first-time claims dropped to 526,250, its lowest aggregate average since January.  In a related piece of news, the Senate got past a procedural “hurdle” in its effort to extend benefits by 14 in all states and by 20 in those states with the worst unemployment rates. 

 Residential construction increased by 23% in the third quarter, its first gain in nearly four years and its largest increase in 23 years.  Inventories of goods also dropped in the third quarter, suggesting strong factory utilization ahead.

Congress is looking into legislation that would punish entities involved in shipping proscribed goods to Iran, with gasoline sales to the country among those targeted.  Fresh sanctions, including one on gasoline supplies, are being considered if Iran fails to reach a desired decision on its nuclear program.

Oil Movements expects Opec to increase exports by 40,000 bpd in the four-week period ending November 14th, Bloomberg noted yesterday.

Technicals

           Oil prices roared back yesterday, jumping on higher equities and a lower dollar.  It is possible that Wednesday’s decline will become a “bear trap.”  Critical resistance is at $82.00 in crude, at 212.89 in heating oil and at 211.24 in gasoline.  Yesterday did not reinstate the uptrend, but it surely caught a number of shorts leaning the wrong way.

Dollars per barrel

Above:  The 7:5+2 crack spread, which reflects refinery margins, has fallen $1.87 in two days.  That is bad news for refiners.

December crude oil now has buy-stops over $80.46, $81.58, $82.00, $84.83, $85.13, $89.82, and $90.99.  Sell-stops are under $77.00-$77.05, $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 207.25, 211.17, 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 199.10, 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 203.60, 207.62, 209.53, 211.24, 214.00, 222.70, and 228.86.  Sell-stops are under 197.25, 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 bears were tackled deep in their own backfield for a loss of 24 yards, making it second and 34 to go, here.

Technical Support & Resistance

Dec crude oil                        Support:             $77.00-$77.05, $76.80-$77.00, $74.40-$74.55, $72.80-$73.00, $72.00-$72.15.

                                           Resistance:        $80.30-$80.46, $81.45-$81.60, $81.75-$82.00, $84.70-$84.83, $85.00-$85.15.

Nov heating oil     Support:             199.10-199.25, 193.90-194.10, 192.15-192.30, 188.75-189.00. 186.50-186.65.

                             Resistance:        207.10-207.25, 211.00-211.17, 212.00-212.12, 212.80-212.90, 215.95-216.07.

Nov Rbob                     Support:             197.25-197.40, 195.37-195.40, 192.00-192.20, 186.25-186.35, 183.90-184.10.

                                           Resistance:        203.45-203.60, 206.80-207.00, 207.40-207.62, 208.00-208.15, 208.40-208.55.

Oil Inventory Reports

      A majority of market observers almost certainly was disappointed by builds in gasoline and, to a lesser degree, in crude oil stocks, and they apparently were not impressed by the larger-than-expected drawdown in distillate inventories.  The jump in refinery utilization was slightly larger than anticipated, but runs are still well-below historical figures for this time of year.  From our perspective, the really bearish aspects of this week’s report came from demand, or the lack thereof.  Not only did we not see any significant increase in distillate demand against last week’s numbers (it was up 15,000 bpd on the week), but four-week total products supplied dropped 97,000 bpd and is now 3.03% lower than a year ago, compared to down 0.12% last week.

     Distillate stocks are now 40.2 million bbls, or 31.50%, higher than a year ago.  Heating oil inventories are 11.8 mln bbls, or 29.57%, higher than they were a year ago.  Gasoline stocks are 15.1 mln bbls (up 7.80%) higher against a year ago.  Crude oil stocks are now 29.8 million bbls, or 9.61%, higher than a year ago.  Residual stocks are 5.0 mln bbls (12.72%) lower than a year ago, jet fuel stocks are 7.7 mln bbls, (20.16%) higher than a year ago.  Utilization is 3.50% lower than a year ago and 6.69% below the eight-year average.  It is 9.90% 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 11,616 contracts on Wednesday, when prices were lower.  That looks like long liquidation, which would be supportive.

      Heating oil open interest dropped by 5,016 contracts on Wednesday, when prices were lower.  That looks like long liquidation, which would be supportive.

      RBOB open interest fell by 117 contracts on Wednesday when prices were lower.  That looks like light, net long liquidation, which would be supportive. 

      Natural gas open interest fell by 35,473 on Wednesday when prices were lower.  That looks like extraordinarily heavy long liquidation and profit-taking by the longs.  It is supportive and is expiration-related.

Wednesday’s Open Interest Changes:  

Crude 1,208,924  dn 11,616       Heat 315,463   dn 5,016       RBOB 247,635  dn 117       Nat gas 687,124  dn 35,473     

CFTC Commitments of Traders for Nymex  (for the period ended Tuesday, Oct 20th)   

 As of Oct 20th:                 Long                   Short:

Crude oil                    275,122               200,739                           -contracts held by speculators:  1.37 long

                                          568,480               647,639                               held by the trade

                                          102,377                 97,601                               held by small specs and hedgers.

Spreads….dn 31,203 contracts   The ratio went from 1.38-to-one long to 1.37-to-one over the last week.

   Large speculators added 22,795 new long contracts and added 17,248 shorts over the week under review.  Commercials liquidated 33,046 longs and covered 16,679 shorts.  Small specs and hedgers liquidated 5,383 longs and covered 16,203 shorts.  Open interest fell by 46,837 contracts as prices were up $4.94/barrel.  Large speculators (Managed Money added 19,508) added positions; commercials, smaller traders and spread traders took them off.  Small trader covering made the difference. 

   The average large speculator has 2,435 long contracts (113 accts, dn 3) which is up 260 contracts, and 1,825 shorts (110 accts, dn 1), down 104 contracts.  Commercials held 7,383 longs (77, dn 7), up 222 contracts and 7,277 shorts (89, dn 7), up 357 contracts.  Reportables held 3,978 longs (280, dn 18 acct), up 101 contracts, and 4,238 shorts (264 accts, dn 16), up 133 contracts.  Eighteen reportable long and 16 reportable short accounts were closed over this week with half being spreads.

Heating oil                   55,312                 15,645                           - contracts held by speculators:  3.53 to 1 long

                                          179,250               235,523                              held by the trade.

                                            41,174                 24,568                               held by small specs and hedgers.

Spreads….up 4,290 contracts.    The ratio of large speculative longs to shorts went from 2.22-to-one to 3.53-to-one in 3 weeks.

       Large speculators added 3,312 longs and added 102 shorts.  Commercial accounts liquidated 2,594 longs and added 5,442 shorts.  Small speculators and hedgers added 604 longs and covered 4,222 shorts.  Open interest grew by 5,612 contracts as prices rallied 12.35 cents.  That looks like net, new buying, which would be supportive.  Large speculators did the best buying, although spread traders added a large proportion of the new open interest.  The trade sold into higher prices, as is expected.

       The average large speculative long is holding 1,317 contracts (dn 169 lots on 42 accounts, up 7), while the average short has 602 contracts (up 66 lots on 26 accts, dn 3).  The average commercial long is holding 2,636 contracts (dn 162 contracts on 68 accts, up 3) compared to the average short holding of 2,981 contracts (dn 46 lots on 79 accts, up 3).  The average reportable position is 1,975 long (dn 164 lots on 139 accts, up 13) while the average short holding is 2,189 (up 25 lots on 133 accts, up 3). There were 13 new reportable long accounts, with seven of those opened by large speculative concerns.

Rbob Gasoline            74,574                13,521                          -contracts held by speculators:  5.52 to 1 long

                                           118,504              183,618                             held by the trade.

                                             19,600                15,539                              held by small specs and hedgers.

Spreads…up 1,630 contracts   The ratio of large speculative longs to shorts went from 2.80-to-one to 5.52-to-one in 3 weeks.

     Large speculative holdings grew by 21,412 longs and grew by 64 shorts over the latest week. Commercial holdings grew by 5,008 longs and rose by 27,830 shorts.  Small speculators and hedgers’ positions grew by 481 longs and fell by 993 shorts.  Open interest rose by 28,531 contracts as prices rallied 15.59 cents, which looks like heavy, new buying.  Large speculators were far and away the best buyers, while commercials were equally large sellers.  Almost all the new buying came from Managed Money (up 20,568) while the selling came from real commercials (up 27,385)

   The average holdings are 1,286 contracts for each large speculative long (58 accts, up 16 accts) and 588 for each large speculative short (23, dn 2).  The average commercial long now has 1,743 contracts long (68, unch) and 2,267 short (81, dn 4). Average reportable holdings are 1,429 long (150, up 31) against 1,820 short (120, dn 9).  There were 31 new reportable long  accounts, which cut the average holding by just 15 lots, and there were 9 less shorts, which boosted the average short by 356.

Naturalgas                89,751               241,791                           -contracts held by speculators:  2.69 to 1 short

                                         300,799               192,653                               held by the trade.

                                           95,785                 51,891                           held by small specs and hedgers.

Spreads…dn 852 contracts    The ratio of large speculative shorts to longs went from 2.48-to-one to 2.69-to-one in a week.

  Large speculative holdings dropped by 9,581 longs and dropped by 4,584 shorts over the latest week. Commercial accounts dropped by 9,334 longs, and fell by 10,255 shorts, while small speculators and hedgers added 5,469 longs and added 1,393 shorts.  Open interest fell by 14,298 contracts as prices rose 57.3 cents.  That looks like heavy short-covering, which we did see by commercials and by large speculators.  Only small specs and hedgers were buying new contracts.  Both large speculators and commercials were also liquidating longs, presumably to lock in profits. Short-covering is not generally supportive as prices rise.

  The average large speculator has 1,056 contracts (dn 170 lots on 85 accts, up 3) while each large speculative short is holding 2,949 shorts (up 181 lots on 82 accts, dn 7).  The average commercial long now has 3,668 contracts long (dn 114 lots on 82 accts, unch) and 2,833 short (dn 108 lots on 68 accts, dn 1). Average reportable holdings are 2,727 long (dn 73 lots on 233 accts, dn 1) long and 3,298 short (up 50 lots on 206 accts, dn 8).  There was one less long and eight fewer short accounts in the reportable category, which highlights the short-covering because that many more short accounts were closed.

Natural Gas & Utility Generation

Natural gas prices were virtually unchanged yesterday as traders tried to balance a number of competing influences in this market.  On the bearish side of the equation, underground storage established fresh record highs.  The National Weather Service (NWS) is now forecasting warmer-than-normal readings across much of the eastern two-thirds of the nation into the middle of November.  Of course, it actually has to arrive, and that might not happen if the colder trend continues to hold sway over temperatures.  It makes the next two weeks critical. 

Traders were trying to discount the most recent economic statistics and the continuing process of recovery.  The steeply higher quotes in oil prices and equities influenced traders in this market.  But, more than anything, strong gains in those markets seem to have prevented prices from selling off in natural gas, where the warming forecasts removed a major pillar of support in the market.  It is still awfully early in the heating season, which has not really even officially started, yet, and it is clear that temperatures and the economy are going to be major factors moving forward.

In cash trading yesterday, Henry Hub prices were at $4.00-$4.20, down $0.44-$0.45 on the day (DJN).  SoCal prices were at $4.28-$4.46, down $0.36-$0.41 on the day.  El Paso Permian prices were down $0.34-$0.48 at $4.11-$4.22.  Katy prices were down $0.36-$0.46 at $3.99-$4.15.  Waha prices were down $0.38-$0.45 at $4.09-$4.20.  Transco 6 was down $0.53-$0.57 at $4.30-$4.53/mmBtu, according to Dow Jones News (DJN). 

Palo Verde prices were last quoted at $38.25-$39.50/mwh.  Northeastern prices last traded at $39.25-$43.75.  Entergy was last at $35.00-$35.50.  Ercot was last at $33.00-$34.50/mwh. 

Physical prices were down smartly yesterday, which underlines the importance of temperatures, even at this early stage.  They had been acting as bullish factors in this market; now that most forecasts seem to be lining up on the warmer or more moderate side, they are acting as a drag on the market. 

This week’s EIA report was ostensibly supportive, in that it showed a smaller build than had been anticipated.  Of course, storage levels are still increasing and, in the views of some observers, any increase in storage levels is considered bearish.  We still tend to see it differently, given carrying costs.  Any amount going into storage represents that much less on the spot market and will be coming back into the market at a time when prices will be higher and demand should be stronger.  Storage injections only represent supply being put away until it is more likely to be needed.  What we tend to focus on is the fact that this year’s injection was lower than it has been in previous years at this time.

Support is at $4.85-$4.86, $4.67-$4.69, $4.43-$4.45, $4.23-$4.25, $4.05-$4.08, $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 $4.63-$4.64, $4.74-$4.77, $5.05-$5.06, $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 fell to their lowest levels since the switch to the November contract a month ago.

Dollars per million Btu

Dec Natural Gas:          Support:         $4.85-$4.86, $4.67-$4.69, $4.43-$4.45, $4.23-$4.25, $4.05-$4.08, $3.73-$3.75.

                                                    Resistance:     $5.05-$5.07, $5.12-$5.14, $5.19-$5.24, $5.30-$5.32, $5.55-$5.57, $5.62-$5.63.

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 373 bcf higher than a year ago, against a surplus of 397 bcf a week ago, a surplus of 450 bcf two weeks ago and a surplus of 473 bcf three weeks ago.  Stocks are now 11.02% higher than a year ago.  They are 414 bcf and 12.38% above the five-year average.

The five-year average for this week was a build of 44.8 bcf, while the eight-year average was a build of 39.13 bcf.  Last year’s build was 46 bcf.  Dow Jones was looking for a build of 29 bcf; Bloomberg forecast a build of 28-31 bcf.

EIA Report

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

News & Views

Economic indicators have had a very mixed week, and it is difficult to tell what’s coming, next.

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 steeply yesterday, taking back all of Wednesday’s gains.  The dollar finished right around its prior breakdown level.  The next few days are very important.  The bulls still have the initiative.

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 rallied nearly 200 points yesterday, and finished at 9962.58, clearly within spitting distance of 10,000.  This gives the bulls a great opportunity to wrest control of this market, but it is also something of a responsibility.  If the DJIA cannot finish the week above 10,000, a number of bulls will be disappointed.

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

A Look at Inventories

Distillate inventories remain very near historic highs.

A Look at Imports

Crude oil average imports have taken a new turn towards lower figures, registering the lowest 13-week average here.

Recommendations for Specific Market Segments