Prices for November 10th, 2009

Market Review for Tuesday        

ROPICAL Storm Ida made landfall near Mobile, Alabama yesterday, with winds diminished to around 45 mph.  By the time Ida reached the Gulf Coast, it had lost enough power for it to cease to be a major threat to production or refining.  A number of producing fields had been shut down as a precautionary measure, but most of them were back in service yesterday.  The storm had been a sudden and unexpected source of buying on Monday, but it helped bring back selling on Tuesday. 

The DJIA was up 20 points yesterday and the US dollar was slightly higher in relatively quiet trading.  Neither one of these markets really changed much in terms of oil markets.  By the time we got to yesterday afternoon, traders were already looking forward to last night’s API report and to this morning’s DOE statistics.  As it turned out, all three major inventory categories showed builds in last night’s API report.  Even utilization was higher. 

The storm forced the precautionary shutdown of 10 rigs and 158 producing platforms, according to Bloomberg.  That shut in 560,000 bpd of oil and 1.9 bcf/day, or 43% of the oil and 28% of the natural gas produced in the US Gulf, according to the Minerals Management Service (MMS). The US Gulf accounts for 27% of US oil output (1.3 million bpd) and 15% of the nation’s natural gas output (7.4 bcf/day).  The Louisiana Offshore Oil Port (LOOP) was closed for a third straight day, yesterday, but should be back in service today or tomorrow, at the latest.  Most facilities are already returning to service, now.  Because wind speeds had dropped significantly, little to no damage is expected.

 The International Energy Agency (IEA) reduced its long-term forecast for global oil demand in its latest monthly update, yesterday.  It now sees world consumption up 1% to 105 million bpd by 2030, an increase of 20 mln bpd from current consumption of roughly 85 mln bpd.  A year ago, the IEA saw 2030 use at 106 mln bpd.  “The global financial crisis and ensuing recession have had a dramatic impact on the outlook for energy markets,” the IEA said.  The growth in consumption is expected to come almost exclusively from developing nations over the 21-year period.  This will be revised many times.

Technicals

           Oil prices had an insignificant technical trading day yesterday.  Prices are still in ranges, with crude oil in a range between $76.55 and $82.00.  Heating oil has support at 196.50 and resistance at 212.89.  Gasoline still has support at 190.26 and major resistance up to 211.24.  Breaks should be followed cautiously.

Ratio: Crude divided by natural gas. 

Above:  Crude oil divided by natural gas was 17.70-to-one yesterday.  On page 9, we have a 17-year chart showing this history.

December crude oil now has buy-stops over $80.34-$80.52, $81.06, $81.58, $82.00, $84.83, $85.13, $89.82, and $90.99.  Sell-stops are under $77.75, $76.55, $74.75, $74.40, $72.80, $72.00, $70.60, $68.88, $68.00, $65.80-$66.20, and $64.95.  December heating oil has buy-stops over 209.05-209.20, 210.00, 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, and 299.71. Sell stops are under 202.95, 201.00, 197.60, 193.90, 192.15, 188.75, 186.50, 182.63, 177.00, 176.68, 173.75, 171.10, 170.35, 168.60, 167.65, and 166.90.  December RBOB has buy-stops over 201.75, 202.30, 203.20-203.60, 207.62, 209.53, 211.24, 214.00, 222.70, and 228.86.  Sell-stops are under 194.80, 192.70, 190.00-190.25, 186.25, 183.90, 179.20, 177.30, 175.14, 171.40, 170.25, and 168.85. 

Football: The bears gained 4 yards on first down, which makes it second and six to go this morning. 

Technical Support & Resistance

Dec crude oil                        Support:             $77.75-$77.89, $76.55-$76.70, $74.75-$74.90, $74.40-$74.45, $72.80-$73.00.

                                           Resistance:        $80.34-$80.52, $80.95-$81.06, $81.45-$81.60, $81.75-$82.00, $84.70-$84.83.

Dec heating oil      Support:             202.95-203.10, 201.00-201.15, 197.60-197.75, 196.50-196.65, 193.90-194.10.

                             Resistance:        207.60-207.75, 209.05-209.20, 209.90-210.00, 211.00-211.17, 212.00-212.12.

Dec Rbob                     Support:             194.80-194.95, 192.70-192.80, 190.25-190.40, 186.25-186.35, 183.90-184.00.

                                           Resistance:        200.70-200.80, 201.65-201.75, 202.15-202.30, 203.17-203.60, 206.80-207.00.

Oil Inventory Reports

      We will still be looking for any sign of increased demand in this week’s DOE report.  We have had some comparatively cold temperatures recently, and we could expect to see a modest increase – or even a temporary stabilization – in distillate demand.  It has fallen in each report over the last eight weeks.  Utilization should continue to decline in this week’s report, even though it is lower than it has been at this time of year for decades.  Crude oil imports should rebound slightly, but they are likely to remain at depressed levels.  We expect crude oil stocks to increase this week, after last week’s decline, and we expect refined products stocks should decline.

     Distillate stocks are now 39.8 million bbls, or 31.19%, higher than a year ago.  Heating oil inventories are 10.3 mln bbls, or 25.56%, higher than they were a year ago.  Gasoline stocks are 13.6 mln bbls (up 6.99%) higher against a year ago.  Crude oil stocks are now 23.8 million bbls, or 7.62%, higher than a year ago.  Residual stocks are 4.3 mln bbls (10.91%) lower than a year ago, jet fuel stocks are 6.8 mln bbls, (17.71%) higher than a year ago.  Utilization is 4.70% lower than a year ago and 8.06% below the eight-year average.  It is 11.20% 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 633 contracts on Monday, when prices were higher.  That looks like light short-covering and is bearish.  This was the lightest change in a very long time. 

      Heating oil open interest was up by 4,928 contracts on Monday, when prices were higher.  That looks like new buying and is supportive. 

      RBOB open interest grew by 226 contracts on Monday when prices were higher.  That looks like light, new buying, which would be supportive.

      Natural gas open interest grew by 1,052 on Monday when prices were higher.  That looks like new buying, which would be supportive.

Monday’s Open Interest Changes:  

Crude 1,215,240  dn 633       Heat 324,884   up 4,928       RBOB 250,598  up 226       Nat gas 709,868  up 1,052             

CFTC Commitments of Traders for Nymex  (for the period ended Tuesday, Nov. 3rd)   

 As of Nov. 3rd:                 Long                   Short:

Crude oil                    277,025               173,208                           -contracts held by speculators:  1.60 long

                                          578,797               694,916                               held by the trade

                                            72,312                 60,010                               held by small specs and hedgers.

Spreads….dn 13,349 contracts   The ratio went from 1.62-to-one long to 1.60-to-one over the last week.

   Large speculators liquidated 8,450 long contracts and covered 2,648 shorts over the week under review.  Commercials added 5,406 longs and added 22,782 shorts.  Small specs and hedgers liquidated 13,092 longs and covered 36,270 shorts.  Open interest fell by 29,485 contracts as prices were up $0.05/barrel.  That looks like net short-covering, although the price change was not significant.  Non-reportable traders liquidated and covered heavily.  Their covering seems to have pushed prices up.

   The average large speculator has 2,099 long contracts (132 accts, up 4) which is down 131 contracts, and 1,786 shorts (97 accts, dn 4), up 45 contracts.  Commercials held 6,577 longs (88, up 7), down 502 contracts and 6,949 shorts (100, up 5), down 126 contracts.  Reportables held 3,742 longs (299, up 6 accts), down 132 contracts, and 4,128 shorts (274 accts, up 7), down 83 contracts.  There were six new long and seven new short accounts in the reportable category.

Heating oil                   58,960                 13,548                           - contracts held by speculators:  4.35 to 1 long

                                          170,599               234,449                              held by the trade.

                                            44,748                 26,310                               held by small specs and hedgers.

Spreads….up 3,033 contracts.    The ratio of large speculative longs to shorts went from 2.22-to-one to 4.35-to-one in 5 weeks.

       Large speculators liquidated 493 longs and added 13,548 shorts.  Commercial accounts added 203 longs and covered 4,881 shorts.  Small speculators and hedgers liquidated 7,648 longs and covered 1,348 shorts.  Open interest fell by 4,905 contracts as prices dropped 0.59 cents.  That looks like long liquiodation, which we saw most heavily from the non-reportable category.  All three categories were covering shorts over the period under review.

       The average large speculative long is holding 1,254 contracts (up 41 lots on 47 accounts, dn 2), while the average short has 542 contracts (dn 45 lots on 25 accts, dn 1).  The average commercial long is holding 2,369 contracts (dn 252 contracts on 72 accts, up 7) compared to the average short holding of 2,894 contracts (dn 214 lots on 81 accts, up 4).  The average reportable position is 1,842 long (dn 46 lots on 147 accts, up 5) while the average short holding is 2,127 (dn 108 lots on 136 accts, up 5). There were five new reportable long accounts, and five new reportable short accounts.

Rbob Gasoline            84,909                15,388                          -contracts held by speculators:  5.52 to 1 long

                                           124,305              199,269                             held by the trade.

                                             21,069                15,626                              held by small specs and hedgers.

Spreads…dn 1,390 contracts   The ratio of large speculative longs to shorts went from 5.55-to-one to 5.52-to-one in 1 week.

     Large speculative holdings grew by 5,083 longs and grew by 1,023 shorts over the latest week. Commercial holdings grew by 12,557 longs and rose by 5,434 shorts.  Small speculators and hedgers’ positions fell by 12,913 longs and fell by 1,730 shorts.  Open interest rose by 3,337 contracts as prices dropped 6.68 cents, which looks like new selling.  Commercials were the best new sellers, but non-reportable long liquidation was heavier.  Large speculators were also selling short in this market.

   The average holdings are 1,163 contracts for each large speculative long (73 accts, up 6 accts) and 855 for each large speculative short (18, dn 2).  The average commercial long now has 1,726 contracts long (72, up 7) and 2,491 short (80, dn 6). Average reportable holdings are 1,411 long (163, up 11) against 1,854 short (127, dn 4).  There were 11 new reportable long  accounts, which added 5 to the average long holding.  There were four fewer short accounts, which increased the average short holding by 95 contracts.  There were six more large speculative longs and two less large speculative shorts.

Naturalgas                73,392               231,042                           -contracts held by speculators:  3.15 to 1 short

                                         304,460               175,623                               held by the trade.

                                           68,724                 39,911                           held by small specs and hedgers.

Spreads…up 6,290 contracts    The ratio of large speculative shorts to longs went from 2.48-to-one to 3.15-to-one in 3 weeks.

  Large speculative holdings dropped by 2,956 longs and were up by 856 shorts over the latest week. Commercial accounts were up by 4,541 longs, and fell by 5,350 shorts, while small speculators and hedgers liquidated 41,061 longs and covered 34,982 shorts.  Open interest fell by 33,186 contracts as prices fell 36.0 cents.  That looks like heavy long liquidation, which would be supportive.  Curiously, though, the heaviest long liquidation came from small speculators and hedgers.  Large speculators liquidated longs and commercials covered shorts, but nothing like what was seen in the non-reportable category.

  The average large speculator has 1,005 contracts (dn 55 lots on 73 accts, up 1) while each large speculative short is holding 3,040 shorts (dn 113 lots on 76 accts, up 3).  The average commercial long now has 3,346 contracts long (dn 224 lots on 91 accts, up 7) and 2,473 short (dn 269 lots on 71 accts, up 5). Average reportable holdings are 2,722 long (dn 89 lots on 228 accts, up 10) long and 3,297 short (dn 130 lots on 197 accts, up 8).  There were 10 more long accounts and eight more short accounts in the reportable category.

Natural Gas & Utility Generation

Natural gas prices gave back another 20 cents yesterday as the warm spell planted roots throughout the northern tier.  It was positively “balmy” yesterday in southwestern New England yesterday, and warmer-than-normal readings are expected to linger in the Northeast into early next week.  It looks like readings will start to drop on Tuesday or Wednesday next week, but we will need to get a better sense as we get nearer that time period.  For now, temperatures are reaching daily highs of 55° and that will go up to 65° by this weekend.  One week is not enough to change a trend of 54 weeks, but three weeks are enough, so we are a third of the way there.  We will know more next week about now.

There are, of course, two ways of looking at the warmer weather.  The first is a random-based day-to-day reaction.  It is warm today and is expected to be until next Monday, and that means less demand here and now.  The second is the approach that means so much to us.  If we see three weeks of this, then the trend will have changed, and that means an entire reworking of our outlook for gas burning from here to May.  It is too soon to reach that conclusion, but it is worth bearing in mind.

In cash trading yesterday, Henry Hub prices were at $3.68-$3.90, down $0.00-$0.16 on the day (DJN).  SoCal prices were at $3.58-$3.67, down $0.01-$0.05 on the day.  El Paso Permian prices were down $0.00-$0.35 at $3.40-$3.55.  Katy prices were down $0.04-$0.04 at $3.58-$3.72.  Waha prices were down $0.14 and up $0.02 at $3.53-$3.60.  Transco 6 was down $0.10 and up $0.02 at $4.04-$4.15/mmBtu, according to Dow Jones News (DJN). 

Palo Verde prices were last quoted at $33.50-$34.25/mwh.  Northeastern prices last traded at $34.00-$39.25.  Entergy was last at $31.25-$33.00.  Ercot was last at $32.90-$33.25/mwh. 

The Minerals Management Service (MMS) reported that 28% or nearly 2 bcf/day had been shut in from Sunday through yesterday.  Most facilities were returning to normal, though, by late yesterday afternoon and through the night.  We cannot say that we expect that the extra 2 bcf/day will be missed, given record amounts of gas in storage, but it will help tighten the supply picture over the near-term – slightly. 

In an early look ahead to tomorrow’s EIA underground storage report, Reuters had a preliminary range of estimates for builds of 10-26 bcf.  Tighter estimates will be compiled by the three major wire services today.  The warmer weather we have right now means larger builds next week and the week after and, if this does turn out to be a change in trend, it could also translate into substantially less natural gas being burned over the late autumn and into winter. 

Traders also continue to keep an eye on economic developments, although nothing that has happened yet seems to have resulted in any increase in industrial demand.    

Support is at $4.43-$4.47, $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, and $240-$2.43.  Resistance is at $4.66-$4.70, $4.87-$4.89, $4.94-$4.99, $5.05-$5.06, $5.19-$5.21, $5.26-$5.28, $5.31-$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 rallied well in what looks like a common reversal day.

Dollars per million Btu

Dec Natural Gas:          Support:         $4.43-$4.47, $4.23-$4.25, $4.05-$4.08, $3.73-$3.75, $3.66-$3.68, $3.50-$3.53.

                                                    Resistance:     $4.66-$4.70, $4.87-$4.89, $4.94-$4.99, $5.05-$5.07, $5.12-$5.14, $5.19-$5.24.

EIA Weekly Storage Figures

Last week’s EIA report showed a build of 29 bcf on expectations for a build of 30-31 bcf.  Stocks are now 379 bcf higher than a year ago, against a surplus of 373 bcf a week ago, a surplus of 397 bcf two weeks ago and a surplus of 450 bcf three weeks ago.  Stocks are now 11.11% higher than a year ago.  They are 414 bcf and 12.27% above the five-year average.

The five-year average for this week was a build of 30.6 bcf, while the eight-year average was a build of 18.00 bcf.  Last year’s build was 62 bcf.  Over the last eight years, stocks have fallen by 48 bcf or grown by 61 and 62 bcf.

EIA Report

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

News & Views

The effects of Ida seem likely to be fleeting and minimal.  All eyes are now switching to this morning’s DOE report.  Last night’s API report was bearish, showing builds across the board and an increase in refinery utilization.

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 mostly steady yesterday, and was higher at times.  The dollar is still in a trading range between 66.20 and 69.00, roughly.

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 about 20 points yesterday.  The DJIA made slightly new highs before finishing with mild gains.  The trend in this remains pointed higher. 

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

A Look at the Weather

We do have colder readings in the Pacific Northwest … and they will slowly move east to cover most of the nation west by northwest of Kansas City by early next week.  But, in the Northeast, temperatures are expected to be moderate to above normal through most of this week.  New York City will be flirting with highs over 60° by the weekend.  This is a warm spell.

Source:  http://www.weather.com/

Recommendations for Specific Market Segments