Prices for November 17th, 2009

Market Review for Tuesday        

O, yesterday, the dollar rebounded reasonably well.  That should have opened the door for the oil market’s fundamentals on two different levels.  The first was just the blind, knee-jerk, one-day-at-a-time, headline-following reaction.  The dollar was steady to stronger, so oil should have dropped.  The second reason was longer-term; by rallying yesterday, the dollar gave fresh support to the double bottom it formed late last week and it took back most of the losses seen on Friday and Monday.  If the dollar is firming or has found a bottom, the reason for strength in oil prices comes from elsewhere.

Equities were up a little more than 30 points, and here it seems that the enduring low-interest rate environment, which convinced dollar traders that the currency was weaker than it really was on Monday, acted as a kind of underlying bullish factor.  The Dow Jones Industrial Average (DJIA) finished yesterday at its highest level in 2009, again.  Oil traders took some of the economic news out yesterday, stirred it into the brew, and pushed oil quotes slightly higher on the day.

Market observers quoted by Dow Jones spoke about an “inevitability” in oil prices moving lower.  They base that on the continuing interference of a weak dollar, the semi-permanence of low interest rates and the belief that the economy will strengthen, at least in a number of ways, into 2010.

There are a number of observers who feel the same sense of inevitability about lower prices in the oil complex.  Supplies remain stubbornly high, despite repeated attempts to slash production and imports, and demand is sloppy, on a good day.  We do get anomalies – like a sudden craving for ultra low sulfur diesel in the mid-continent, reportedly by the agricultural sector (it just seems an odd time for that, with just winter wheat on the docket till spring).  Periodically, demand bubbles up for a week or two, but it has typically died down rather quickly.

Of course, no one knew it was going to work out this way, but last night’s API report was bullish.  There was a good-sized drawdown in crude oil stocks, a draw in gasoline stocks and another decline in utilization rates – by a full percentage point.  Crude oil imports were up 165,000 bpd, but it made no real difference; imports were just above 9 million bpd. 

Technicals

           Oil prices were higher, yesterday, without there being any real reason for the advance.  Crude oil and heating oil prices are up against trendline resistance from flag channels.  Some would argue that a break above the channel line would give us objectives higher.  We tend to feel that we need breaks above the market’s recent highs.

Cents per gallon

Above:  The 7:5+2 crack spread finished yesterday at $5.71.  It remains on the low side.

December crude oil now has buy-stops over $79.80, $80.34-$80.52, $81.06, $81.58, $82.00, $84.83, $85.13, $89.82, and $90.99.  Sell-stops are under $78.00, $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 207.00, 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 201.90, 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 202.30, 203.20-203.60, 207.62, 209.53, 211.24, 214.00, 222.70, and 228.86.  Sell-stops are under 196.85, 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 2 yards yesterday on third and 29 to go.  It is fourth and 31 to go, today.  The bulls should get the ball.

Technical Support & Resistance

Dec crude oil                        Support:             $78.00-$78.20, $76.30-$76.45, $75.55-$75.65, $74.75-$74.90, $74.40-$74.45.

                                           Resistance:        $79.55-$79.80, $80.34-$80.52, $80.95-$81.06, $81.45-$81.60, $81.75-$82.00.

Dec heating oil      Support:             201.90-202.10, 196.30-196.50, 195.00-195.15, 193.90-194.10, 192.15-192.30.

                             Resistance:        206.85-207.00, 207.60-207.75, 209.05-209.20, 209.90-210.00, 211.00-211.17.

Dec Rbob                     Support:             196.85-197.00, 191.50-191.65, 190.60-190.70, 190.25-190.40, 186.25-186.35.

                                           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 10,679 contracts on Monday, when prices were higher.  That looks like short-covering, which would be bearish.

      Heating oil open interest was up by 3,839 contracts on Monday, when prices were higher.  That looks like new buying, which would be supportive.

      RBOB open interest rose by 5,250 contracts on Monday when prices were higher.  That looks like new buying and would be constructive.

      Natural gas open interest rose by 2,019 on Monday when prices advanced.  That looks like new buying and is supportive.

Monday’s Open Interest Changes:  

Crude 1,244,695  dn 10,679       Heat 324,178   up 3,839       RBOB 261,118  up 5,250       Nat gas 736,883  up 2,019    

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 dropped yesterday as traders took profits on long positions in reaction to the latest wave of economic data.  US industrial production was lower than anticipated, and that seems to have brought in some selling, at least according to observers quoted by Dow Jones.  Others, it noted, had seen Monday’s rally as “overdone.”  In any event, the buying yesterday was not enough to absorb long liquidation and new short-selling.    

We see the market in a different light.  The chart continues to scream at us; large, well-heeled, probably commercial, but possibly a different group of buyers have been absorbing huge numbers of contracts sold into this market.  The sellers tried – over the course of more than two weeks – to batter and break the line of defense set up by these buyers.  The sellers have to have believed that the buying would exhaust itself at some point and that prices would then start to drop sharply, as the market broke out into an area with bids more widely dispersed.  After four or five days, these sellers apparently felt that it would just be a matter of time.  But their heavy selling continued for ten or eleven days and the market refused to break.  The scaled-down buyers had been able to place block after block of limit buy orders and these absorbed the selling, which ended on Monday.

In cash trading yesterday, Henry Hub prices were at $3.07-$3.79, up $0.48-$0.59 on the day (DJN).  SoCal prices were at $3.50-$4.12, up $0.68-$0.96 on the day.  El Paso Permian prices were up $0.62-$0.70 at $3.34-$3.72.  Katy prices were up $0.59-$0.80 at $3.35-$3.69.  Waha prices were up $0.61-$0.70 at $3.40-$3.70.  Transco 6 was up $0.65-$0.95 at $3.85-$4.20/mmBtu, according to Dow Jones News (DJN).  Cash prices were up dramatically yesterday, with prices jumping in big chunks.  Offers were as hard to find as bids had been just a few days ago.

Palo Verde prices were last quoted at $32.25-$36.50/mwh.  Northeastern prices last traded at $21.50-$39.00.  Entergy was last at $27.50-$32.00.  Ercot was last at $28.25-$28.65/mwh. 

Some private forecasters reportedly altered their forecasts yesterday, and the predictions are now mixed.  Some are calling for warmer readings, but others are sticking with Monday’s call for colder readings into December.  How it actually plays out, in the event, will be important.  If temperatures do not experience significantly warmer readings before December, we can say that we will be expecting the colder trend to continue and that we expect a colder, longer winter than normal.  Only seven to 14 days of high 50-degree readings in the Northeast (basis NYC) would persuade us, at this stage, that the colder-than-normal trend in existence for a year has ended.  The evidence, right this minute, suggests that the trend is still in place as we head into winter proper.

We do not know if the scaled-down buying (that we have seen as such a critical development in this market) has been based on well-informed weather outlooks, a genuine need for natural gas, quiet industrial demand or investor buying.  We tend to feel that it was not investors, because they rarely buy like that.  It seems to have been corporate buying in its own interest.

Support is at $4.49-$4.51, $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 $4.72-$4.74, $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 were slightly lower yesterday, but they remained above the trendline they broke on Monday.

Dollars per million Btu

Dec Natural Gas:          Support:         $4.49-$4.51, $4.35-$4.37, $4.28-$4.29, $4.23-$4.25, $4.05-$4.08, $3.73-$3.75.

                                                    Resistance:     $4.72-$4.74, $4.87-$4.89, $4.94-$4.99, $5.05-$5.06, $5.19-$5.21, $5.26-$5.28.

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

Traders will be looking to see if this week’s DOE report confirms the figures seen in last night’s API figures.  We continue to believe that the double bottom in the US dollar is also an extremely important factor in this week’s continuing trading.

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 advanced briskly at points yesterday, with the day’s highs challenging last week’s highs before selling pushed us back to finish between last Thursday’s settle and Friday’s settle.  In the process, the dollar reconfirmed the double bottom pattern and it confirmed that it 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 advanced more than 30 points yesterday, finishing at new highs, again, for 2009.  Investors continue to bank on low interest rates over the predictable future. 

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

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