Prices for November 12th, 2009

Market Review for Thursday               

HE US dollar advanced sharply yesterday, and it looks like we may have a double bottom forming.  Prices found support near the lower end of their range, and they bounced significantly higher in heavy trading yesterday.  Despite a drop in the most recent unemployment figures, investors expressed doubts over the ability of the global economy to sustain a major recovery.  The result of this was a massive move out of commodities and stocks and back into the US dollar.  Because it was so unexpected, many traders were caught leaning the wrong way and were forced to cover. 

This sudden strength in the dollar helped to push oil prices lower, and it allowed the fundamentals to shine through in yesterday’s DOE report.  Like this week’s API report, this week’s DOE report showed builds in all three major inventory categories.  The DOE report showed a decline in refinery utilization, though, and that is where the two reports differed.  In any event, the headlines helped to drive prices lower. 

If yesterday’s sharp rally in the dollar represents the beginning of a move higher for the US currency, it would be bearish for oil prices.  As we have noted before, it is not so much that a stronger dollar generates as much selling in oil as a weak one generates buying; it is the fact that a strong dollar does not trigger buying in oil by the big index and ETF players, which lets fundamental factors have their say.  Yesterday’s strong dollar did actually spur some liquidation in the long-only positions held by these funds, but it also opened the door to allow fundamental factors to have some influence.  Either way, yesterday was not a good day for the longs in this market. 

Even though distillate stocks increased in this latest report, the year-to-year surplus dropped from 39.8 million barrels to 38.7 million bbls.  Crude oil stocks now have a year-on-year surplus of 23.6 million bbls, compared to last week’s 23.8 million bbls.  Gasoline stocks saw an increase in their year-to-year surplus, which grew from 13.6 million bbls to 14.4 million bbls.  What was most telling about this week’s report was that inventories grew even in the face of record low refinery utilization.  Four-week demand, for all products, is now 4.7% lower than a year ago, compared to the corresponding four weeks in 2008.

Technicals

           The oil complex was lower yesterday and crude oil prices broke just below their previous low.  Crude is now in a range between $76.50 and $82.00, and it won’t take much to break.  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.  Prices have rallied when weak before.

Dollars per barrel

Above:  The 7:5+2 crack spread remains at depressed levels, implying poor margins for refiners.

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 $76.50, $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 197.60, 196.50, 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 192.10, 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 23 yards yesterday on third and eight, and that gives them a new set of downs.

Technical Support & Resistance

Dec crude oil                        Support:             $76.50-$76.70, $74.75-$74.90, $74.40-$74.45, $72.80-$73.00, $70.60-$70.75.

                                           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:             197.60-197.80, 196.50-196.65, 193.90-194.10, 192.15-192.30, 188.75-188.90.

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

Dec Rbob                     Support:             192.10-192.25, 190.25-190.40, 186.25-186.35, 183.90-184.00, 179.20-179.35.

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

Oil Inventory Reports

      This week’s DOE report showed builds in all three major inventory categories, and there was a minor increase in crude oil imports.  Refinery utilization dropped and it is now below 80% for the first time in decades – without there having been a hurricane to push it there.  Refinery margins do not justify higher runs right now and there is plenty of supply available both upstream and downstream.  Crude oil inventories were expected to increase, but refined products inventories were not.  It is a measure of how poor demand is that refined products inventories were able to build at all in this latest report. 

     Distillate stocks are now 38.7 million bbls, or 30.00%, higher than a year ago.  Heating oil inventories are 10.7 mln bbls, or 26.29%, higher than they were a year ago.  Gasoline stocks are 14.4 mln bbls (up 7.33%) higher against a year ago.  Crude oil stocks are now 23.6 million bbls, or 7.51%, higher than a year ago.  Residual stocks are 3.3 mln bbls (8.40%) lower than a year ago, jet fuel stocks are 6.4 mln bbls, (16.71%) higher than a year ago.  Utilization is 4.67% lower than a year ago and 7.42% below the eight-year average.  It is 11.37% 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 10,067 contracts on Wednesday, when prices were higher.  That looks like good, new buying, although prices were not up dramatically.

      Heating oil open interest dropped by 1,087 contracts on Wednesday, when prices were higher.  That looks like short-covering, which would be bearish.

      RBOB open interest rose by 1,886 contracts on Wednesday when prices were higher.  That looks like new buying and would be supportive.

      Natural gas open interest fell by 5,540 on Wednesday when prices were higher.  That looks like short-covering, which would be bearish. 

Wednesday’s Open Interest Changes:  

Crude 1,2435,322  up 10,067       Heat 322,568   dn 1,087       RBOB 252,159  up 1,886       Nat gas 719,235  dn 5,540  

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 dropped again yesterday, as any support offered by higher oil prices was withdrawn.  There was some buying earlier in the day, as traders reacted to cold temperatures in the Northeast.  Predictions have been telling us to expect moderating temperatures through most of the week, but there was a marked decline in readings yesterday, after really warm temperatures on Sunday and Monday.  Readings are forecast to get milder going into the weekend, but there has been a huge disparity between what has been forecast and what we have experienced recently.  Nevertheless, traders continue to react to predictions for moderate or mild readings ahead. 

The National Weather Service (NWS) is still forecasting above-normal readings over the next two weeks.  Private forecasters cited by Dow Jones were looking for the same thing.  Even though the predictions have had uneven results in terms of actually being there when we get there, the fairly consistent pattern of mild or warmer-than-normal forecasts has kept this market under selling pressure.

In cash trading yesterday, Henry Hub prices were at $3.00-$3.40, down $0.27-$0.50 on the day (DJN).  SoCal prices were at $3.10-$3.45, down $0.21-$0.39 on the day.  El Paso Permian prices were down $0.20-$0.36 at $3.00-$3.23.  Katy prices were down $0.34-$0.51 at $2.99-$3.26.  Waha prices were down $0.29-$0.44 at $2.99-$3.23.  Transco 6 was down $0.46-$0.51 at $3.42-$3.62/mmBtu, according to Dow Jones News (DJN).  Prices were weak across the board.

Palo Verde prices were last quoted at $28.25-$31.00/mwh.  Northeastern prices last traded at $33.00-$40.65.  Entergy was last at $28.75-$29.25.  Ercot was last at $27.95-$28.50/mwh. 

The Minerals Management Service (MMS) reported yesterday that almost all productive capacity was back online, with just a few million cubic feet waiting to get back into the system.  Everything should be back today. 

The EIA underground storage report will be out this morning, delayed a day by Veterans’ Day.  Dow Jones is looking for a build of 15 bcf, based on its survey.  The five year average for this time is a build of 30 bcf, it noted.  For the same Friday a year ago, our records show a build of 62 bcf.  We have a five-year average build of 30.6 bcf and an eight-year average build of 18 bcf.  We expect this year’s build to reduce the surplus against both a year ago and against the five-year average.  

Support is at $4.35-$4.37, $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 continued moving lower yesterday.

Dollars per million Btu

Dec Natural Gas:          Support:         $4.35-$4.37, $4.23-$4.25, $4.05-$4.08, $3.73-$3.75, $3.66-$3.68, $3.50-$3.53.

                                                    Resistance:     $4.51-$4.52, $4.66-$4.70, $4.87-$4.89, $4.94-$4.99, $5.05-$5.07, $5.12-$5.14.

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

Demand remains extremely poor for this time of year, and that helped stocks to build this week. 

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 rallied steeply yesterday, after testing the lower end of its trading range.  It looks like a double bottom pattern.  This could be an important low.  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 dropped nearly 94 points yesterday, as the US dollar rallied and investors (one more time) experienced doubts over the future of the US and global economies.  Nonetheless, 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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