Prices for November 19th, 2009

Market Review for Thursday    

ISAPPOINTMENT gripped oil futures and stock indices yesterday as investors reacted to the mild gains seen in both on Wednesday.  Federal Reserve Bank of St Louis President James Bullard had startled markets by predicting that the Fed could keep interest rates near zero until 2012, and many felt that his comments should have generated much stronger buying interest in both equities and futures on Wednesday.  The fact that this buying had not materialized left investors wondering what might be needed to trigger new highs in both markets – which were very near recent highs when the comments were made. Oil futures had the additional benefit of declines across the board in inventories and refinery utilization.  The same disappointment on the upside in equities and oil futures was felt by bearish US dollar currency traders, who felt that a zero interest rate regime into 2012 was just about as bearish a prediction as could have been made.  Instead, the US dollar sustained itself above its double low bottom reached last week, and it rallied yesterday.  Oil prices tumbled yesterday.

The lack of hammer blows to the dollar, vigorous buying and new highs in equities and a temporary break above trendlines, which could not be held, in oil futures, on Wednesday, cast a long shadow over yesterday’s trading.  The disappointment ushered in a period of reexamination.

Investors were talking about a double-dip recession yesterday, and commentators were groping for hopeful signs.  Fresh concerns were expressed over real estate prospects, the weakness of the consumer, the lack of maneuvering room by the government and the sheer vastness of underutilized Chinese capacity.  These fears were not new, but their sudden renewed urgency was.  The half-filled glass was suddenly seen as being half-empty.

If supply was the focus on Wednesday, as traders noted inventory drawdowns, demand moved to the center ring yesterday.  There have been improvements relatively speaking in distillate demand; consumption is still lagging far behind last year’s levels.  Higher equities were supposed to lead to a strengthening economy and higher demand, and a weaker dollar was supposed to give us inflation.  They may arrive in the future, but there is no sign of either, yet, and that diminishes the influence of equities and currencies on oil prices.

Technicals

           The oil complex was lower yesterday as prices tested the upper channel lines on Wednesday and failed to break them decisively.  In the process, the lines have been redrawn.  Prices seem to be headed towards the lower channel support lines, although we have no reason to expect a breakdown. 

Dollars per barrel

Above:  Crude oil prices have found resistance at and below $82.00.  Prices could come back dramatically if a downtrend returns.

January 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 $77.00, $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 205.70, 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 198.45, 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 202.05, 205.25, 207.62, 209.53, 211.24, 214.00, 222.70, and 228.86.  Sell-stops are under 195.55, 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 bulls took over and promptly lost 21 yards, making it second and 31 to go.  It is all backwards, now.

Technical Support & Resistance

Jan crude oil                         Support:             $77.00-$77.15, $76.30-$76.45, $75.55-$75.65, $74.75-$74.90, $74.40-$74.45.

                                           Resistance:        $79.55-$79.87, $80.33-$80.52, $80.95-$81.06, $81.45-$81.60, $81.75-$82.00.

Dec heating oil      Support:             198.45-198.60, 196.30-196.50, 195.00-195.15, 193.90-194.10, 192.15-192.30.

                             Resistance:        205.60-205.70, 206.85-207.00, 207.60-207.75, 209.05-209.20, 209.90-210.00.

Dec Rbob                     Support:             195.55-195.70, 191.50-191.65, 190.60-190.70, 190.25-190.40, 186.25-186.35.

                                           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 10,714 contracts on Wednesday, when prices were higher.  That looks like heavy short-covering, which would be bearish.  Expiration was a factor.

      Heating oil open interest was up by 667 contracts on Wednesday, when prices were lower.  That looks like mild, new buying, which would be lightly supportive.

      RBOB open interest rose by 2,707 contracts on Wednesday when prices were higher.  That looks like new buying and would be constructive.

      Natural gas open interest fell by 14,561 on Wednesday when prices declined.  That looks like long liquidation and is supportive.

Wednesday’s Open Interest Changes:  

Crude 1,188,627  dn 10,714       Heat 325,123   up 667       RBOB 269,513  up 2,707       Nat gas 747,622  dn 14,561     

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 rebounded by 8.8 cents yesterday, with prices bouncing higher from a low along the trendline that prices broke earlier in the week.  We had honestly expected to see better buying after Monday’s move higher, based on the clear scaled-down buying we had seen for two weeks, but this is typically a confused time for futures traders.  It might not feel like it, yet, but we are just about to enter the twilight zone that is trading at the end of any calendar year.  When we return on Monday, traders will start unwinding positions before Thanksgiving Weekend.  The Nymex may be open next Friday, but hardly anyone will be at work.  The exchange used to close on “Black Friday,” but a few years ago, some genius decided it would be fun and profitable to be open that day.  Thanksgiving Weekend is the biggest travel period in any year in which July 4th does not fall on a Tuesday or Thursday, and even shut-ins and hermits tend to visit someone over the period. It is the essential day devoted to American family, and opening the exchange the next day is ghoulish greed, but we digress.  Some positions taken off next week will not be put back on until early 2010.  Many professional traders and fund managers get very skittish about risking bonuses once we get into December.  As a result, trends have trouble after next week.

In cash trading yesterday, Henry Hub prices were at $3.36-$3.69, down $0.17-$0.20 on the day (DJN).  SoCal prices were at $3.63-$3.87, down $0.27-$0.34 on the day.  El Paso Permian prices were down $0.08-$0.35 at $3.45-$3.72.  Katy prices were down $0.06-$0.20 at $3.44-$3.68.  Waha prices were down $0.26-$0.30 at $3.40-$3.67.  Transco 6 was down $0.35-$0.38 at $3.73-$4.00/mmBtu, according to Dow Jones News (DJN).  Yesterday, cash prices were dropping in large increments, after having risen in big, “chunky” trades.  Temperatures have not changed that much day to day, over the last week or two, but prices surely have. 

Palo Verde prices were last quoted at $33.50-$36.50/mwh.  Northeastern prices last traded at $26.05-$38.00.  Entergy was last at $29.50-$31.00.  Ercot was last at $28.40-$29.25/mwh. 

Weather forecasts suggest it is more likely that we will see colder-than-normal than warmer-than-normal readings over the next two weeks.  There are proponents, among the meteorological community, for both, though.  The fact that temperatures have trended towards the colder side for more than a year makes us believe that we will continue to see colder readings.  There was a very real opportunity for temperatures to warm this fall, but we only had two or three days that were significantly warmer than normal.  And, in our experience, it takes three weeks of dramatically different readings to start a new trend.  That is exactly what happened a year ago, when unexpectedly cold readings enveloped the area east and north of the Rockies.  Since then, we have had a fairly unbroken string of colder, wetter days and weeks.  This has been seen this harvest in the Midwest (see “Fuel for Thought.)

Support is at $4.15-$4.17, $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 $4.35-$4.37, $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 rallied from the trendline drawn beneath.

Dollars per million Btu

Dec Natural Gas:          Support:         $4.15-$4.17, $4.05-$4.08, $3.73-$3.75, $3.66-$3.68, $3.50-$3.53, $3.44-$3.46.

                                                    Resistance:     $4.35-$4.37, $4.57-$4.59, $4.72-$4.74, $4.87-$4.89, $4.94-$4.99, $5.05-$5.06.

EIA Weekly Storage Figures

This week’s EIA report showed a build of 20 bcf on expectations for a build of 19-21 bcf.  Stocks are now 347 bcf higher than a year ago, against a surplus of 350 bcf a week ago, a surplus of 379 bcf two weeks ago and a surplus of 373 bcf three weeks ago.  Stocks are now 9.95% higher than a year ago.  They are 419 bcf and 12.27% 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 was 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 tea-leaves suggest that oil prices will now try to test the bottom of their channel lines, although we have little reason to expect prices to break below those numbers any time soon.  The fundamentals had some relative improvement, which is the story for the quarter so far – relative improvement on a number of fronts that remain absolutely terrible.

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 higher against the euro yesterday, after having been under pressure at points.  The dollar finished near its highs for the day, yesterday, and last week’s bottom is still in place.  We have seen wide ranges recently, suggesting heavy buying and selling in alternating waves, but the dollar has held and is still in a trading range between 66.20 and 69.00.

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 investors reacted in disappointment to Wednesday’s mild gains in response to extreme comments by Federal Reserve of St Louis President Bullard suggesting that interest rates may remain at or near zero through 2012.  Many felt that these comments should have generated strong buying and new highs on Wednesday.

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

A Look at Inventories

Distillate inventories remain well above historical figures for this time of year, and are a few million barrels shy of all-time record highs.

Crude oil inventories remain higher than has been typical for the middle of the fourth quarter.

This has placed extraordinary pressure on imports, which are now at historical lows.

A Look at Imports

One look at this chart informs us that gasoline imports are now at their lowest levels in years for this time period.

Thirteen-week average distillate imports have rebounded, but they remain historically low.

Thirteen-week crude oil imports have been ratcheted repeatedly lower in an effort to prevent additional stock builds.

These numbers are dramatically lower than any period in previous years.

Recommendations for Specific Market Segments