Prices for November 18th, 2009

Market Review for Wednesday 

EDERAL Reserve Bank of St Louis President James Bullard shocked currency traders by telling reporters yesterday that the Fed could keep interest rates near zero until 2012.  Observers noted that Bullard is not a voting member of the FOMC this year, but the effect on currency markets was sudden and severe.  Traders bought other currencies aggressively against the greenback – but the dollar still held above its major support at its double bottom.  While the promise (threat?) of low interest rates for another two full years pushed the dollar lower, it did not have its traditional impact (to send prices higher) in equities. 

The DJIA was down 11.11 points, hardly a stinging defeat for the bulls, but not exactly the bullish reaffirmation one would have expected from a promise of low interest rates for so extended a period.  To our eyes, it strikes us as being a matter of longs booking profits after one of the more bullish pieces of news one could have expected. In any event, equities were weak.

The dollar provided most of yesterday’s biggest headlines, but yesterday morning’s DOE report gave the oil complex more specific directions.  All three major inventory categories showed declines, but the draws in gasoline and in crude oil stocks were bigger than the draw in distillate stocks.

This helped give us the rather peculiar result of higher crude oil and gasoline prices, but lower heating oil prices.  For the amount of bullish input we had yesterday, we would have to describe the day’s gains as disappointing.  We have seen plenty of days during which prices have advanced more than 200 points on less substantial factors. 

Of course, the great mitigating factor was demand.  Four-week distillate demand ‘improved’ against last week (in comparison with a year ago) and now has two weeks in a row of ‘improving’ demand.  By that, we mean that four-week demand was down 14.80% two weeks ago, and down 13.76% (against a year ago) last week.  Now, four-week distillate demand is down ‘only’ 11.38%.  Now, it’s not bursting, bristling, or even brisk demand, but it might qualify as “bubbling” or “babbling” (like a brook) demand.  It is better than it was, although it was horrendous.  Now, it’s just pathetic.   

Technicals

           Oil prices were mixed to higher, yesterday, with heating oil the odd man lower.  Crude and heating oil both broke over channel line resistance but then sold back beneath them to finish near the day’s lows.  Gasoline also ended near the session’s lows and the bears have the momentum, just at a time when the bulls are supposed to have it. 

Cents per gallon

Above:  The gas over heating oil spread was 3.72 cents gas under yesterday.  It was 62.11 under in ‘08 and 11.96 and 23.42 in ’07 and ‘06

December crude oil now has buy-stops over $80.33-$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 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 203.25, 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 205.25, 207.62, 209.53, 211.24, 214.00, 222.70, and 228.86.  Sell-stops are under 199.70, 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 4 yards yesterday on fourth and 31 to go, and gave it to the bulls.  Like Belichick, they went for it.

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, $80.33-$80.52, $80.95-$81.06, $81.45-$81.60, $81.75-$82.00.

Dec heating oil      Support:             203.25-203.40, 201.90-202.10, 196.30-196.50, 195.00-195.15, 193.90-194.10.

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

Dec Rbob                     Support:             199.70-199.90, 196.85-197.00, 191.50-191.65, 190.60-190.70, 190.25-190.40.

                                           Resistance:        201.65-201.75, 202.15-202.30, 203.17-203.60, 205.10-205.25, 207.50-207.65.

Oil Inventory Reports

      This week’s DOE report showed draws across the three major inventory categories, with a larger-than expected draw in gasoline stocks.  Utilization fell to yet another historic low and is well below any measure one might choose – even the four years after Hurricane Katrina, which had, until recently acted like an archaeological change in underlying layers of dirt.  This year now comes as another major change against which previous and potentially subsequent layers can be judged diagnostically as a layer of provenance among which artifacts like builds and draws can be placed in context.

     Distillate stocks are now 36.5 million bbls, or 27.88%, higher than a year ago.  Heating oil inventories are 10.7 mln bbls, or 26.09%, higher than they were a year ago.  Gasoline stocks are 10.6 mln bbls (up 5.34%) higher against a year ago.  Crude oil stocks are now 20.6 million bbls, or 6.51%, higher than a year ago.  Residual stocks are 2.6 mln bbls (6.64%) lower than a year ago, jet fuel stocks are 5.6 mln bbls, (14.66%) higher than a year ago.  Utilization is 5.46% lower than a year ago and 10.02% below the eight-year average.  It is 12.71% lower than the four-year, pre-Katrina average and 7.34% below the average after it.

                                                                    DOE Weekly Inventory Statistics

Source: US Department of Energy’s Energy Information Administration  

Open Interest Analysis

      Crude oil open interest fell by 45,354 contracts on Tuesday, when prices were higher.  That looks like heavy short-covering, which would be bearish … but which is tempered by expiration.

      Heating oil open interest was up by 278 contracts on Tuesday, when prices were higher.  That looks like mild, new buying, which would be lightly supportive.

      RBOB open interest rose by 5,688 contracts on Tuesday when prices were higher.  That looks like heavy, new buying and would be constructive.

      Natural gas open interest rose by 5,300 on Tuesday when prices declined.  That looks like new selling and is bearish.

Tuesday’s Open Interest Changes:  

Crude 1,199,341  dn 45,354       Heat 324,456   up 278       RBOB 266,806  up 5,688       Nat gas 742,183  up 5,300       

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 almost 28 cents yesterday as traders took on board fresh forecasts calling for more moderate temperatures.  There are still some private forecasters calling for cooler readings in the East at the end of November and into December – and we tend to think they will be right, just because of the 12-15 days projected forward as being moderate, only three or four actually arrived that way.  No doubt about it; forecasts for mild readings in the Midwest and Northeast are just not making it through the pass.  We have had plenty of warmer temperatures in the future, but precious few in the actual present once we get to those erstwhile future dates.

Being a future-driven market, traders discount the future far too often without keeping it honest with a reassessment once it arrives.  It does not just happen in natural gas.  We have been drawing straight-line connections between higher equities, economic recovery and growth and an inevitable increase in oil demand.  And the equation has short-circuited consistently between the higher equities part and the subsequent stages.  People keep buying into the paradigm, though, and they keep selling (natural gas) into moderate weather predictions that have been spotty at best this autumn.

In cash trading yesterday, Henry Hub prices were at $3.53-$3.89, up $0.10-$0.46 on the day (DJN).  SoCal prices were at $3.90-$4.21, up $0.09-$0.40 on the day.  El Paso Permian prices were up $0.09-$0.46 at $3.80-$3.81.  Katy prices were up $0.15-$0.19 at $3.50-$3.88.  Waha prices were up $0.23-$0.30 at $3.70-$3.93.  Transco 6 was up $0.15-$0.26 at $4.11-$4.35/mmBtu, according to Dow Jones News (DJN).  Cash prices have posted large gains each day, so far, this week.  Offers have dried up as sellers have headed for the hills – proving that temperatures are not meeting mild expectations.

Palo Verde prices were last quoted at $33.75-$38.50/mwh.  Northeastern prices last traded at $25.00-$39.50.  Entergy was last at $31.75-$32.25.  Ercot was last at $29.75-$31.00/mwh. 

The dollar, equities, interest rates, and economic factors make “cameo” appearances.  EIA underground storage figures work on Thursday.  Traders balance their books somewhat on Fridays and from the spot Nymex contract expiration through the end of each month.  High storage levels are trotted out by reporters on down days when nothing else fits.  And a small band of devoted locals and old-school brokers and analysts still use charts.  Almost everything else fits under “Weather.”  But, as we have noted, this topic is susceptible to the most subjective and the least results-correlated criteria.  Its closest comparison is slander or libel.  Once it has been said on page one, no number of retractions on page 24 can dispel the myth.  If a forecast calls for moderate readings, it is discounted when it is made and not negated if it fails to arrive at the appointed hour.  If it is forecast enough, no amount of contradictory skin-feel can denigrate either the source or the following forecast.  People might even believe that it was what was forecast rather than what they felt.

Support is at $4.22-$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 $4.57-$4.59, $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 lower yesterday, but they remained just above the trendline they broke on Monday – as well as last Friday’s low..

Dollars per million Btu

Dec Natural Gas:          Support:         $4.22-$4.25, $4.05-$4.08, $3.73-$3.75, $3.66-$3.68, $3.50-$3.53, $3.44-$3.46.

                                                    Resistance:     $4.57-$4.59, $4.72-$4.74, $4.87-$4.89, $4.94-$4.99, $5.05-$5.06, $5.19-$5.21.

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 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.  Dow Jones expects a build of 21 bcf; Bloomberg is expecting a build of 19-20.  The 5-year date avg is 10.

EIA Report

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

News & Views

The dollar bears and oil bulls had an opportunity to break the dollar below last week’s double bottom and the oil complex above recent trendlines and their recent highs.  The failure to make decisive breaks is being viewed as a disappointment this morning.  The information out yesterday has, in the past, given us two-dollar advances in crude oil prices.

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 declined steeply yesterday on comments suggesting that low interest rates will be with us in the US into 2012.  Despite that, the dollar did not break down to new lows.  The dollar still has a double bottom pattern and 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 dropped 11.11 points yesterday, despite comments suggesting very low US interest rates for the next two or three years to come.  It was an unexpected result, and seems to have included heavy profit-taking by longs.

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

A Look at Gasoline Supply & Demand

Thirteen-week demand, in the chart above, is not improving.  The chart below shows thirteen-week demand improving in comparison with a year ago.

Thirteen-week demand is at 9.076 million bpd, up 0.79% against last year.  Thirteen-week supply is at 9.819 mln bpd, down 0.94%.  Thirteen-week implied demand is at 9.827 mln bpd, down 0.46%.

A Look at Distillate Supply & Demand

Thirteen-week average demand seems to be turning on both charts, showing both absolute and relative improvement.

Thirteen-week demand is at 3.491 million bpd, down 12.28% against last year.  Thirteen-week supply is at 4.184 mln bpd, down 2.49%.  Thirteen-week implied demand is at 4.120 mln bpd, down 7.70%.

A Look at Refinery Utilization Rates

Utilization is 5.46% lower than a year ago and 10.02% below the eight-year average.  It is 12.71% lower than the four-year, pre-Katrina average and 7.34% below the average in the four-year period after Katrina & Rita.

Recommendations for Specific Market Segments