Prices for November 11th, 2009

Market Review for Wednesday            

IL prices were lightly higher yesterday, as traders waited for this week’s DOE report, which was delayed until today because of Veterans’ Day yesterday.  Prices had been lower in overnight trading in reaction to Tuesday night’s API report, and it hit a kind of stasis yesterday as traders waited for this week’s DOE report.  Based on the API figures, prices had been lower in reaction to builds in all three major inventory categories, but as yesterday’s trading progressed, shorts covered positions. 

According to Dow Jones, Chinese industrial production figures, which increased sharply in October, helped imbue the market with a sense of optimism over the future of the global economy.  And, in this case, stronger economic figures were accompanied by greater oil demand (something we have not been able to generate yet in the US).  October had the second-highest oil import figures on record into China.    

The US dollar was under selling pressure early yesterday, and that helped to send gold to new record highs, trading as high as $1,114 yesterday.  The dollar ultimately rallied, trading up 0.113 at 75.134 on the dollar index.  It had reached nearly 15-month lows earlier in the session.  It is a peculiar time right now, with gold and the DJIA both printing new highs, both on a belief that low interest rates will be with us for a while.  Curiously, though, the two markets are discounting different aspects of the same impetus.  The stock market has always advanced in low rate environments, because it is easier for businesses to access credit.  Gold is advancing on the anathema-to-stocks belief that low rates will also bring inflation, perhaps well down the road, though.  It is an uneasy move in tandem.

A weak dollar also makes oil attractive, partially as a hedge against inflation and partially as an asset that is less expensive in terms of other currencies.  Oil prices were higher yesterday, and it seems that the buying came in as a result of a weaker dollar.  When the greenback rallied later in the day, those gains in oil were pared, but apparently were not reversed.  At this stage, moves in the dollar seem to be the most consistent factor influencing oil prices.

Technicals

           The oil complex had another 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.

Cents per gallon. 

Above:  Gasoline resistance goes up to 211.24.  It has had trouble getting above 210.

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 lost two yards on second and six, making it third and eight here today. 

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 grew by 20,015 contracts on Tuesday, when prices were lower.  That looks like heavy new selling, but prices were not down enough to know that for certain.  It is probably both heavy new buying and selling.

      Heating oil open interest dropped by 1,229 contracts on Tuesday, when prices were lower.  That looks like long liquidation, which would be supportive.

      RBOB open interest fell by 325 contracts on Tuesday when prices were lower.  That looks like light, long liquidation, which would be supportive.

      Natural gas open interest grew by 14,907 on Tuesday when prices were lower.  That looks like new selling, which would be bearish.

Tuesday’s Open Interest Changes:  

Crude 1,235,255  up 20,015       Heat 323,655   dn 1,229       RBOB 250,273  dn 325       Nat gas 724,775  up 14,907     

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 rallied lightly yesterday in a day of prices drifting higher across the energy complex.  Some called it bargain-hunting, while others saw it as short-covering.  Either way, it was fairly mild and did not seem to have much power or anything terribly solid behind it.  Prices had been falling for a few days, largely on the back of the actual arrival of a warmer set of temperature readings.  These seem likely to be with us through the weekend and into early next week.  After that, though, the course taken by actual temperatures will be critical in determining if this period was an aberration or the start of a new trend for the next six or even 12 months. 

The National Weather Service (NWS) is predicting above-normal readings from the middle of next week and into the following week, but these forecasts need to actually get here and be noticeable to have any real impact.  It is supposed to get warmer as we get into the weekend in the Northeast, but, here as well, this needs to translate into real skin-feel.  It was noticeable this past weekend; if we get another round of warmth this weekend, it could be significant in the bigger picture.

In cash trading yesterday, Henry Hub prices were at $3.50-$3.67, down $0.18-$0.23 on the day (DJN).  SoCal prices were at $3.49-$3.66, down $0.01-$0.09 on the day.  El Paso Permian prices were down $0.04-$0.12 at $3.36-$3.43.  Katy prices were down $0.08-$0.12 at $3.50-$3.60.  Waha prices were down $0.08-$0.10 at $3.43-$3.52.  Transco 6 was down $0.07-$0.11 at $3.93-$4.08/mmBtu, according to Dow Jones News (DJN). 

Palo Verde prices were last quoted at $33.50-$34.25/mwh.  Northeastern prices last traded at $33.25-$40.75.  Entergy was last at $27.00-$31.00.  Ercot was last at $30.00-$30.25/mwh. 

The Minerals Management Service (MMS) reported yesterday that 7.6% or a little more than half a bcf was still offline.  That was expected to be returned to normal service fairly immediately.  Because Ida came so late in the season, in early November, the hot tropical air that makes storms so terrible in the summer was just not potent enough to build a terribly severe storm.  As it was, this storm also veered to the east, skirting the main concentrations of oil and gas platforms.

Dow Jones is looking for a build of 15 bcf in today’s EIA underground storage report.  Reuters had an early range of builds of 10-26 bcf.  We are getting to the point at which builds should become negligible.  Draws are unlikely to begin until we get into December or before the colder weather encourages companies to pull supplies from storage.  A sudden increase in prices could have the same effect, although that would probably need to be initiated by cold weather or some other factor.    

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

Traders will be looking at this morning’s DOE figures and at the US dollar for signs of where oil prices may be headed 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 was mostly steady again 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 more than 44 points yesterday, as 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

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