Prices for November 16th, 2009

Market Review for Monday         

ED Chairman Ben Bernanke reiterated that interest rates will remain low for an extended period well into the future.  This pushed the dollar lower initially, although it rallied later in the day.  The DJIA soared to new highs for the year and gold reached new, all-time highs, and oil prices backed away from fundamentals and joined in the low interest rate frenzy.  Even though the dollar held remarkably steady against the euro, the talk was all about its weakness and the likelihood that it will remain weak.  Once again, the so-called “appetite” for risk seemed to border on mindless gluttony.

Coming up to Thanksgiving, it started us thinking about appetites.  There is the classic, old-fashioned one, after one has worked hard or worked out, and one has not eaten.  It’s raw, primal hunger, based on the expenditure of effort and an empty stomach.  We have seen moves based on that, when a commodity is in short supply and demand is robust.  The buying recently has not been like that at all.  It’s like the exchanges have been turned into restaurants, and once people are there, they just eat.

There is the appetite one gets, sometimes on days like the one coming next week, when one isn’t necessarily hungry, one has not worked especially, and one’s stomach is not really empty.  But, still one ends up eating more than one logically might.  We read a study recently, that one eats 40% more in the company of two other people (as opposed to being alone) and as much as 90% more when joined by four others.  It is an interesting study in group dynamics.

And the current appetite for risk clearly falls into the second category.  That is especially true in oil, in which the stomach (inventories) is full and any sense of calorie-burning hunger (demand) is clearly absent.  And, just like the study, this appetite seems to have been stimulated by the fact that others are “eating” along with each other.  It is a very artificial appetite, spurred by a weak dollar, strong equities or even by the cause (low interest rates) that are fuelling both.

On top of all the oil we have in US inventories, Dow Jones recently quoted a study that estimated there are 40-45 million barrels of crude and 85-95 million barrels of refined products sitting in tankers around the world.  It takes a very special kind of gluttony to develop an appetite with such full stomachs.  Yesterday, the dollar was relatively steady, but talk of it falling sent oil higher.

Technicals

           Oil prices soared yesterday, and the best technical reason came from trendlines drawn at the lower end of what could be called a channel.  The breakdowns in crude and heating oil were effectively negated, forcing the bears to make their case all over again by breaking to fresh, new lows.  Gasoline held above its major support at 190.26 last week.

Cents per gallon

Above:  Gasoline prices held above support at 190.26, and advanced from that sharply yesterday.  We are watching resistance again.

December crude oil now has buy-stops over $79.55, $80.34-$80.52, $81.06, $81.58, $82.00, $84.83, $85.13, $89.82, and $90.99.  Sell-stops are under $76.30, $75.55, $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 204.65, 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 196.30, 195.00, 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 200.50, 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 191.50, 190.60, 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 25 yards yesterday on second and just four to go.  It could have been an interception; we will see.

Technical Support & Resistance

Dec crude oil                        Support:             $76.30-$76.45, $75.55-$75.65, $74.75-$74.90, $74.40-$74.45, $72.80-$73.00.

                                           Resistance:        $79.40-$79.55, $80.34-$80.52, $80.95-$81.06, $81.45-$81.60, $81.75-$82.00.

Dec heating oil      Support:             196.30-196.50, 195.00-195.15, 193.90-194.10, 192.15-192.30, 188.75-188.90.

                             Resistance:        204.50-204.65, 207.60-207.75, 209.05-209.20, 209.90-210.00, 211.00-211.17.

Dec Rbob                     Support:             191.50-191.65, 190.60-190.70, 190.25-190.40, 186.25-186.35, 183.90-184.00.

                                           Resistance:        200.50-200.80, 201.65-201.75, 202.15-202.30, 203.17-203.60, 207.50-207.65.

Oil Inventory Reports

      This week’s DOE report should show a drawdown in distillate stocks, and has in five of the last eight years.  Still, we might not get a drawdown in this week’s figures, if last week’s report is any kind of indicator.  Gasoline stocks are likely to build, as they have in seven of the last eight years during this week.  Low demand is likely to give us another build in this week’s report, even though utilization is substantially lower than it has been at this time in previous years.  Crude oil stocks are also likely to increase this week, as higher expected imports combine with low utilization to give us left over crude.

     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 fell by 9,361 contracts on Friday, when prices were lower.  That looks like long liquidation and is supportive. 

      Heating oil open interest dropped by 2,442 contracts on Friday, when prices were lower.  That looks like light, long liquidation, which would be supportive.

      RBOB open interest rose by 2,450 contracts on Friday when prices were lower.  That looks like new selling and would be bearish.

      Natural gas open interest rose by 4,039 on Friday when prices advanced.  That looks like good, new buying and is supportive.

Friday’s Open Interest Changes:  

Crude 1,255,374  dn 9,361       Heat 320,339   dn 2,442       RBOB 255,868  up 2,450       Nat gas 734,864  up 4,039      

CFTC Commitments of Traders for Nymex  (for the period ended Tuesday, Nov 10th)   

 As of Nov 10th:                 Long                   Short:

Crude oil                    269,879               181,834                           -contracts held by speculators:  1.48 long

                                          608,136               719,207                               held by the trade

                                          104,297                 81,271                               held by small specs and hedgers.

Spreads….dn 10,281 contracts   The ratio went from 1.62-to-one long to 1.48-to-one over the last two weeks.

   Large speculators liquidated 7,146 long contracts and added 8,626 shorts over the week under review.  Commercials added 29,339 longs and added 24,291 shorts.  Small specs and hedgers added 31,985 longs and added 21,261 shorts.  Open interest grew by 43,897 contracts as prices dropped $0.55/barrel.  That looks like heavy, net new selling, which we saw from all three categories.  Large speculators were also liquidating longs, while commercials and non-reportables were buying into weakness.

   The average large speculator has 2,076 long contracts (130 accts, dn 2) which is down 23 contracts, and 1,976 shorts (92 accts, dn 5), up 140 contracts.  Commercials held 7,071 longs (86, dn 2), up 494 contracts and 7,265 shorts (99, dn 1), up 316 contracts.  Reportables held 3,846 longs (294, dn 5 accts), up 104 contracts, and 4,337 shorts (266 accts, dn 8), up 209 contracts.  There were five fewer long accounts and eight fewer short accounts in the reportable category.

Heating oil                   57,810                 12,291                           - contracts held by speculators:  4.70 to 1 long

                                          181,044               237,759                              held by the trade.

                                            42,574                 31,378                               held by small specs and hedgers.

Spreads….up 627 contracts.    The ratio of large speculative longs to shorts went from 2.22-to-one to 4.70-to-one in 6 weeks.

       Large speculators liquidated 1,150 longs and covered 1,257 shorts.  Commercial accounts added 10,445 longs and added 3,310 shorts.  Small speculators and hedgers liquidated 2,174 longs and added 5,068 shorts.  Open interest rose by 7,748 contracts as prices dropped 2.10 cents.  That looks like new selling, which would be bearish.  The heaviest selling came from non-reportable traders, followed by commercial accounts.  Large and small speculators were liquidating longs.

       The average large speculative long is holding 1,204 contracts (dn 50 lots on 48 accounts, up 1), while the average short has 473 contracts (dn 69 lots on 26 accts, up 1).  The average commercial long is holding 2,550 contracts (up 181 contracts on 71 accts, dn 1) compared to the average short holding of 3,010 contracts (up 116 lots on 79 accts, dn 2).  The average reportable position is 1,950 long (up 108 lots on 144 accts, dn 3) while the average short holding is 2,195 (up 68 lots on 133 accts, dn 3). There were three fewer long and short reportable accounts.

Rbob Gasoline            78,963                16,130                          -contracts held by speculators:  4.90 to 1 long

                                           129,307              198,349                             held by the trade.

                                             22,007                15,798                              held by small specs and hedgers.

Spreads…up 1,517 contracts   The ratio of large speculative longs to shorts went from 5.55-to-one to 4.90-to-one in 2 weeks.

     Large speculative holdings fell by 5,946 longs and grew by 742 shorts over the latest week. Commercial holdings grew by 5,002 longs and fell by 920 shorts.  Small speculators and hedgers’ positions rose by 938 longs and grew by 172 shorts.  Open interest rose by 1,511 contracts as prices dropped 2.30 cents, which looks like new selling.  Most of the increase in open interest came from spreads and there was very little new selling, with the best selling coming from large speculative liquidation.

   The average holdings are 1,144 contracts for each large speculative long (69 accts, dn 4 accts) and 849 for each large speculative short (19, up 1).  The average commercial long now has 1,724 contracts long (75, up 3) and 2,333 short (85, up 5). Average reportable holdings are 1,406 long (164, up 11) against 1,767 short (134, up 7).  There was one new reportable long  account, which cut 5 from the average long holding.  There were seven new short accounts, which decreased the average short holding by 87 contracts.  There were four less large speculative longs and one less large speculative short.

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…dn 5,554 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 were up by 9,518 longs and were up by 11,787 shorts over the latest week. Commercial accounts were up by 13,854 longs, and rose by 15,056 shorts, while small speculators and hedgers added 10,210 longs and added 6,739 shorts.  Open interest rose by 28,028 contracts as prices fell 45.5 cents.  That looks like heavy new selling, and each of the three categories added fresh short positions over the week under review.  Commercials sold the most, followed by large speculators, but all three categories were also buying fresh longs.  As prices dropped, everyone was buying on a scaled-down basis.

  The average large speculator has 1,011 contracts (up 06 lots on 82 accts, up 9) while each large speculative short is holding 3,372 shorts (up 332 lots on 72 accts, dn 4).  The average commercial long now has 3,316 contracts long (dn 30 lots on 96 accts, up 5) and 2,648 short (up 175 lots on 72 accts, up 1). Average reportable holdings are 2,683 long (dn 39 lots on 238 accts, up 10) long and 3,354 short (up 57 lots on 200 accts, up 3).  There were 10 more long accounts and three more short accounts in the reportable category.  There were nine new large speculative longs and four fewer short accounts. 

Natural Gas & Utility Generation

Natural gas prices rallied briskly yesterday, which is what typically happens in a market that has consistent scaled-down buying – once the selling lets up for a moment.  That is what happened yesterday; the selling let up, as temperature forecasts changed towards colder readings along the Eastern Seaboard.  When traders went home for the weekend, the latest and most up-to-date forecasts had been predicting warmer or more moderate readings.  Market observers also pointed at strength in crude oil and new highs in equities as supporting factors. 

One look at the chart below shows that there had been heavy, relentless selling pressure on prices.  And, yet they dropped at an almost 45-degree angle, rather than following a straight line lower, as is seen when buy orders are widely separated.  One, or a number of good buyers had placed large scaled-down limit orders (at given prices or better) at regular intervals on the way down.  As soon as the selling had eaten through one block, it ran into another, and this went on for nine or 10 consecutive trading sessions.  The sellers could not break through to widely spaced buy orders; once the selling stopped, prices rebounded.

In cash trading yesterday, Henry Hub prices were at $2.48-$3.31, up $0.57-$0.82 on the day (DJN).  SoCal prices were at $2.82-$3.16, up $0.36-$0.42 on the day.  El Paso Permian prices were up $0.30-$0.34 at $2.64-$3.10.  Katy prices were up $0.18-$0.41 at $2.55-$3.10.  Waha prices were up $0.40-$0.45 at $2.65-$3.09.  Transco 6 was up $0.35-$0.73 at $2.90-$3.55/mmBtu, according to Dow Jones News (DJN).  Cash prices rallied yesterday, and they quickly took back large chunks of the losses seen late last week.  Physical prices dropped in big amounts and rallied the same way.

Palo Verde prices were last quoted at $25.00-$27.00/mwh.  Northeastern prices last traded at $33.00-$37.00.  Entergy was last at $25.00-$26.00.  Ercot was last at $25.25-$26.25/mwh. 

On Friday, Baker-Hughes reported a nearly 9% increase in active rigs, posting the highest figure for 2009 – but natural gas rigs declined.  Oil rigs were up by 29 to 361, the biggest number of active rigs in the US since the week that ended November 7th, 2008, when there were 442 rigs operating.  Natural gas rigs declined by six, to 728.  Despite that, the total active rig count for both oil and gas reached 1,101, its highest figure in eight months.  Natural gas rigs are 55% below their peak of 1,606, reached in the week that ended September 12th, 2008.  Total rigs in Canada increased by 30 to 263.  Natural gas rigs had been working higher in recent weeks, and this does not look like a new trend. 

We have not yet had enough of a change in the weather pattern for us to believe that the colder-than-normal trend east of the Rockies has ended, yet.  And the latest set of forecasts seem to have thrust a dagger in the heart of the possibility that we would move to a more moderate framework.  If temperatures do turn out to be colder than normal over the next two weeks (on balance), we would endorse the idea of temperatures continuing to trend towards the colder side through winter. 

Support is at $4.35-$4.37, $4.28-$4.29, $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 briskly as the selling let up long enough for the buying to break loose.

Dollars per million Btu

Dec Natural Gas:          Support:         $4.35-$4.37, $4.28-$4.29, $4.23-$4.25, $4.05-$4.08, $3.73-$3.75, $3.66-$3.68.

                                                    Resistance:     $4.45-$4.46, $4.51-$4.52, $4.66-$4.70, $4.87-$4.89, $4.94-$4.99, $5.05-$5.07.

EIA Weekly Storage Figures

Last week’s EIA report showed a build of 25 bcf on expectations for a build of 15 bcf.  Stocks are now 350 bcf higher than a year ago, against a surplus of 379 bcf a week ago, a surplus of 373 bcf two weeks ago and a surplus of 397 bcf three weeks ago.  Stocks are now 10.10% higher than a year ago.  They are 409 bcf and 12.01% above the five-year average.

The five-year average for this week was a draw of 7.6 bcf, while the eight-year average was a draw of 7.0 bcf.  Last year’s build was 16 bcf. 

EIA Report

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

News & Views

Today’s scheduled reports include the Producer Price Index (PPI), Industrial Production and then this afternoons API figures.  The oil market’s big figures are out tomorrow from the DOE, and there is disagreement over the effects of Ida.

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 held above critical support around the 66.230-66.50 region.  It is still in a trading range between 66.20 and 69.00, roughly.  Yesterday’s rally was light and was ignored by oil and commodities traders, who saw the possibility of new lows later this week.  Gold reached new highs yesterday on indications that interest rates will remain low into the future.

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 advanced 136 points yesterday, bursting to new highs for 2009.  Reinforced signs that interest rates will remain low for an extended period into the future supported equities. 

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 record high levels for this time of year.

Crude oil stocks have diminished, but are still higher than they have been at this time of year before, in recent years.

A Look at Imports

Thirteen-week crude oil imports are falling dramatically, but inventories are still rising or holding relatively steady.

Recommendations for Specific Market Segments