Prices for November 20th, 2009

Market Review for Friday & over the Weekend     

HE oil complex was mostly lower on Friday, although gasoline prices finished higher.  The December crude oil contract expired on Friday and there seemed to be some late short-covering by traders that had waited until the very end to buy back contracts.  The US dollar was higher on Friday and equities were slightly lower.  These factors worked together to press oil prices lower. 

It was an interesting week.  The biggest event was a comment by James Bullard, President of the Federal Reserve Bank of St Louis.  He told reporters that interest rates were going to be kept low into 2012, which means they would be kept at or near existing rates (zero) for another two years plus.  Almost everyone in a leadership position at the Fed has spoken recently about the need to maintain low rates, but most of them have used the language of analysts – in which the first rule is never to predict both a rate and a date.  One can talk about keeping low rates for “an extended period,” but should not put a date on it.

Many observers were surprised by Mr Bullard’s comments.  They went further than most other remarks suggesting that interest rates will remain low for a longer time than many might have initially presumed.  His words could have been used as an excuse to break the US dollar down below major support established the week before.  And they could have been seen as bullish enough to push equities to new highs.  They did neither.

We believe that the dollar’s ability to hold above major support was an important event last week.  Its double bottom remains intact.  While the stock market had a few weaker sessions last week, it still is near enough its highs that it could make new ones.  But, as the week ended on Friday, investors were once again talking about the economy being weaker than many had expected.

Capital Economics wrote on Friday that “There are a number of reasons to believe that this will be another ‘jobless’ recovery.”  It spoke about strong productivity “dampening demand” among private employers and “fiscal pressures” keeping a lid on public employment gains.  Its bottom line is that “without stronger consumption growth [which employment provides consumers], this economic recovery is ultimately doomed to disappoint.”

Technicals

           The oil complex was mixed to lower on Friday, with crude oil and heating oil prices lower and gasoline prices higher.  In the oils, there has been a clear pattern of bouncing off channel line, both on the upside and on the downside.  They now seem to be nearing a fresh test of the lower channel bands, after testing them a week earlier and then dropping from a test of the upper band last week. 

Cents per gallon

Above:  Gasoline went to a premium over heating oil on Friday.  That is very unusual and reflects the poor demand in distillate right now.

January crude oil now has buy-stops over $78.61, $80.33-$80.52, $81.06, $81.58, $82.00, $84.83, $85.13, $89.82, and $90.99.  Sell-stops are under $76.75, $76.20, $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 200.77, 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, and 273.20. Sell stops are under 195.85, 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 199.10, 202.05, 205.25, 207.62, 209.53, 211.24, 214.00, 222.70, and 228.86.  Sell-stops are under 194.40, 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 lost another seven yards, making it an almost impossible third and 38 to go as we start this short week.

Technical Support & Resistance

Jan crude oil                         Support:             $76.75-$76.85, $76.20-$76.45, $75.55-$75.65, $74.75-$74.90, $74.40-$74.45.

                                           Resistance:        $78.50-$78.61, $80.33-$80.52, $80.95-$81.06, $81.45-$81.60, $81.75-$82.00.

Dec heating oil      Support:             196.30-196.50, 195.85-195.90, 195.00-195.15, 193.90-194.10, 192.15-192.30.

                             Resistance:        200.70-200.77, 205.60-205.70, 206.85-207.00, 207.60-207.75, 209.05-209.20.

Dec Rbob                     Support:             194.40-194.55, 191.50-191.65, 190.60-190.70, 190.25-190.40, 186.25-186.35.

                                           Resistance:        198.95-199.10, 201.65-201.75, 202.15-202.30, 203.17-203.60, 205.10-205.25.

Oil Inventory Reports

      As we get towards the end of the calendar year, we tend to see a final burst of refining activity before turnarounds start in earnest in January.  Since they typically last into late April or even May, in some years, refiners generally use the final five or six weeks of the year to build inventories to make it into spring.  Utilization has increased this week in seven of the last eight years.  Gasoline stocks have increased in six of the last eight years, by an average of 2.107 million bbls, and crude oil stocks have declined in six of the last eight years, by an average of 2.800 million bbls.

     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 19,284 contracts on Thursday, when prices were lower.  That looks like heavy long liquidation a day ahead of the December contract expiration. 

      Heating oil open interest was up by 3,723 contracts on Thursday, when prices were lower.  That looks like fresh selling, which would be bearish. 

      RBOB open interest fell by 976 contracts on Thursday when prices were lower.  That looks like long liquidation, which would be supportive.

      Natural gas open interest fell by 16,296 on Thursday when prices were up.  That looks like heavy short-covering, which would be bearish.

Thursday’s Open Interest Changes:  

Crude 1,169,343  dn 19,284       Heat 328,846   up 3,723       RBOB 268,537  dn 976       Nat gas 711,326  dn 16,296     

CFTC Commitments of Traders for Nymex  (for the period ended Tuesday, Nov 17th)   

 As of Nov 17th:                 Long                   Short:

Crude oil                    250,170               163,822                           -contracts held by speculators:  1.53 long

                                          609,511               722,123                               held by the trade

                                          141,021               114,757                               held by small specs and hedgers.

Spreads….dn 3,268 contracts   The ratio went from 1.48-to-one long to 1.53-to-one over the last week.

   Large speculators liquidated 19,709 long contracts and covered 18,012 shorts over the week under review.  Commercials added 1,375 longs and added 2,916 shorts.  Small specs and hedgers added 36,724 longs and added 33,486 shorts.  Open interest grew by 15,122 contracts as prices were up $0.09/barrel.  That looks like good, new buying, which we saw from the non-reportable category.  Large speculators were liquidating longs and covering shorts.

   The average large speculator has 2,194 long contracts (114 accts, dn 16) which is up 118 contracts, and 1,883 shorts (87 accts, dn 5), down 93 contracts.  Commercials held 7,256 longs (84, dn 2), up 185 contracts and 7,221 shorts (100, up 1), down 44 contracts.  Reportables held 3,933 longs (282, dn 12 accts), up 87 contracts, and 4,383 shorts (259 accts, dn 7), up 46 contracts.  There were 16 fewer long accounts and five fewer short accounts in the large speculator category.

Heating oil                   55,345                 15,619                           - contracts held by speculators:  3.54 to 1 long

                                          185,175               231,361                              held by the trade.

                                            41,070                 34,610                               held by small specs and hedgers.

Spreads….dn 1,217 contracts.    The ratio of large speculative longs to shorts went from 4.70-to-one to 3.54-to-one in a week.

       Large speculators liquidated 2,465 longs and added 3,328 shorts.  Commercial accounts added 4,131 longs and covered 6,398 shorts.  Small speculators and hedgers liquidated 1,504 longs and added 3,232 shorts.  Open interest fell by 1,055 contracts as prices rallied 0.62 cents.  That looks like net short-covering, which would be a negative development.  The best short-covering came from commercial accounts, which were also buying outright.

       The average large speculative long is holding 1,129 contracts (dn 75 lots on 49 accounts, up 1), while the average short has 625 contracts (up 152 lots on 25 accts, dn 1).  The average commercial long is holding 2,502 contracts (dn 48 contracts on 74 accts, up 3) compared to the average short holding of 2,929 contracts (dn 81 lots on 79 accts, unch).  The average reportable position is 1,900 long (dn 50 lots on 148 accts, up 4) while the average short holding is 2,131 (dn 64 lots on 135 accts, up 2). There were four more long and two more short accounts held in the reportable category.

Rbob Gasoline            79,741                18,953                          -contracts held by speculators:  4.21 to 1 long

                                           142,601              209,042                             held by the trade.

                                             22,153                16,500                              held by small specs and hedgers.

Spreads…up 2,659 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 grew by 778 longs and grew by 2,823 shorts over the latest week. Commercial holdings grew by 13,294 longs and grew by 10,693 shorts.  Small speculators and hedgers’ positions rose by 146 longs and grew by 702 shorts.  Open interest rose by 16,877 contracts as prices rallied 2.75 cents, which looks like new buying.  Most of the increase in open interest came from commercial buying, but there was heavy commercial selling as well. 

   The average holdings are 1,173 contracts for each large speculative long (68 accts, dn 1 acct) and 862 for each large speculative short (22, up 3).  The average commercial long now has 1,805 contracts long (79, up 4) and 2,272 short (92, up 7). Average reportable holdings are 1,463 long (169, up 5) against 1,745 short (143, up 9).  There were 5 new reportable long  accounts, which added 57 to the average long holding.  There were nine new short accounts, which decreased the average short holding by 22 contracts.  There was one less large speculative long and three more large speculative shorts.

Naturalgas                83,931               251,215                           -contracts held by speculators:  2.99 to 1 short

                                         323,134               187,492                               held by the trade.

                                           86,359                 54,717                           held by small specs and hedgers.

Spreads…up 19,401 contracts  The ratio of large speculative shorts to longs went from 3.15-to-one to 2.99-to-one in one week.

  Large speculative holdings were up by 1,021 longs and were up by 8,386 shorts over the latest week. Commercial accounts were up by 4,820 longs, and fell by 3,187 shorts, while small speculators and hedgers added 7,425 longs and added 8,067 shorts.  Open interest rose by 32,667 contracts as prices rose 6.3 cents.  That looks like heavy new buying, although it did not get much on the upside.  All three categories were buying, but the non-reportable category was buying the most.  Speculators, both large and small, were selling into higher prices.  Both categories were better sellers than buyers.

  The average large speculator has 1,036 contracts (up 25 lots on 81 accts, dn 1) while each large speculative short is holding 3,221 shorts (dn 151 lots on 78 accts, up 6).  The average commercial long now has 3,401 contracts long (up 85 lots on 95 accts, dn 1) and 2,678 short (up 30 lots on 70 accts, dn 2). Average reportable holdings are 2,731 long (up 48 lots on 243 accts, up 5) long and 3,327 short (dn 27 lots on 209 accts, up 9).  There were five more long accounts and nine more short accounts in the reportable category.  There was one less large speculative long and six more large speculative short accounts. 

Natural Gas & Utility Generation

Natural gas prices clawed back another 8.2 cents on Friday, making it two days in a row during which gas traders did not take any cues from oil or from equities.  The commonly-held story was that traders were covering shorts heading into the weekend, knowing that this week is likely to be a difficult one.  The December contract expiration and end-of-month cash-outs and book-squaring all have to take place over the next few sessions.  The Nymex is open on Friday, but many cash and futures traders will not be coming in that day.  And few traders are likely to leave business until Monday, November 30th.  As a result, we are much more likely to see positions closed this week. 

In several cases, the positions closed this week are unlikely to re reopened until the new year.  Any traders who accumulated profits, to this point, are unlikely to want to risk them – and bonuses – in a year that few would describe as having been easy.  Some positions will be replaced and there will be trading in December, but it typically takes on a more cautious note after Thanksgiving.  And this week, itself, is notoriously difficult, largely because so many traders are taking positions off and not placing fresh positions on.  That makes this week a difficult one for traders (the majority of them) who like to follow trends.

In cash trading on Friday, Henry Hub prices were at $3.00-$3.37, down $0.32-$0.36 on the day (DJN).  SoCal prices were at $3.12-$3.46, down $0.41-$0.51 on the day.  El Paso Permian prices were down $0.27-$0.51 at $2.94-$3.45.  Katy prices were down $0.41-$0.43 at $3.03-$3.25.  Waha prices were down $0.43-$0.56 at $2.97-$3.11.  Transco 6 was down $0.35-$0.47 at $3.26-$3.65/mmBtu, according to Dow Jones News (DJN).  For the past several sessions, we have seen big rises and declines, moves that have effectively dwarfed the moves seen in the months before this period.  We used to see these big moves periodically; recently, we have seen them almost every day. 

Palo Verde prices were last quoted at $33.75-$35.00/mwh.  Northeastern prices last traded at $33.75-$35.50.  Entergy was last at $27.75-$28.25.  Ercot was last at $25.25-$25.75/mwh. 

Weather forecasts continue to suggest colder-than-normal temperatures as we end November and enter December.  We have noted here before that weather seems to trend.  That does not surprise us, because it seems that trends are everywhere in the world we live in.  They are the results of Newton’s Law of Inertia – a body at rest will stay at rest, and a body in motion will tend to stay in motion.  Something has to happen to initiate or end any trend.  And, the simple fact of the matter is that we had a trend towards colder temperatures coming in to this November, and nothing that has happened over the last four to six weeks has acted powerfully enough to halt that trend.  As a result, we expect that it will be colder-than-normal across much of the country, east of the Rockies, this coming winter.  We also expect this winter to follow last winter’s pattern and last longer than normal (we expect it to be cold later this spring).

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 $4.45-$4.47, $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:     $4.45-$4.47, $4.57-$4.59, $4.72-$4.74, $4.87-$4.89, $4.94-$4.99, $5.05-$5.06.

EIA Weekly Storage Figures

Last 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 for this week has been a draw of 32.8 bcf, while the eight-year average has been a draw of 25.25 bcf.  Last year’s draw was 66 bcf.   

EIA Report

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

News & Views

This week has traditionally seen refineries increase output in an end-of-year push before turnarounds get under way in earnest in the first quarter.  The increase in utilization continues on and off through the end of the calendar year.  Last week’s biggest factor was the dollar’s ability to hold above the lows made the week before.

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 on Friday, and the dollar managed to hold above the double bottom low it reached two weeks ago.  The dollar held up remarkably well last week despite a number of potentially bearish factors.  The bears need to break this market to new lows or the probability is that we have seen a bottom, at least temporarily.

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 more than 14 points on Friday in a lackluster session.  Equities were lightly lower and the dollar was higher, and that was a bearish combination for oil prices. 

Despite recent consolidation, the DJIA will not require much to make fresh highs, again, soon.  The bears would need to sell prices down substantially to end this market’s bullish possibilities.

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

Recommendations for Specific Market Segments

The Nymex will be open on Friday, but hardly anyone will be trading it.  For a number of years, the exchange was closed for both Thursday & Friday for Thanksgiving and then four or five years ago, some genius decided to reopen the markets on Friday.  We are not doing a report on Thanksgiving Day and are taking Friday off, because we do want to encourage these geniuses.  We have enough going on in the world without needing to open the Nymex on the day after Thanksgiving.

If anyone needs us, we will be available, which is the case at any time for our clients.  Please enjoy the time and travel safely.

Monthly Average Prices →

Average Monthly Nymex Settlement Prices

Crude Oil

The Nymex average crude oil settlement price in October was the highest, yet, for 2009, although it was just barely the lowest October in three years.  The October average was 23.91% below the average for 2008.  On the other hand, the average for October was 2.627 times the average price for October, 2002.  It was higher, though, than the average for every year than 2008, just beating the average for 2007.

Crude Oil      in dollars per barrel   

Open interest is for the final trading day of the month above.

Dollars per barrel

Heating Oil

The Nymex heating oil monthly average settlement price for October was the highest seen so far in 2009, but was the lowest October since 2006.  This year’s October average was $0.2861 and 12.76% lower than a year ago.  At the same time, though, it was higher than every October average between 1979 and 2005.  It was more than a dollar a gallon higher than the averages seen in October, 2002 and 2003.

Heating Oil               in cents per gallon

Cents per gallon

Gasoline

The October average Nymex gasoline (now RBOB) settlement price was the third highest yet seen in 2009.  It was actually higher than the average seen a year ago, although it was lower than the average seen in 2007.  It was still higher than every September average from the contract’s birth through 2006. 

In October, 2009, Americans spent $1.437 billion more on gasoline than they had a year earlier.  That means that Americans have spent about $135.474 billion less on gasoline over the first 10 months of 2009 than they did over the first 10 months of 2008.  That is effectively a tax rebate of that amount, which translates into $452, so far, for each American man, woman and child, this year.  With gasoline representing about half the barrel, that comes to roughly $904 as the running rebate from oil so far this year.  The fact that the rebate is now being eaten into is one reason why the economic recovery seems to be slowing.  Earlier in the year, it was helping consumers; now, it is hurting them, again.

Gasoline                    in cents per gallon

Cents per gallon

Natural Gas

The average Nymex natural gas price for October was the second highest so far this year, rebounding sharply from the September average.  It was still the lowest October average since 2002, which is saying quite a bit.  It should have the effect, though, of keeping utility prices from rising dramatically in the near future.  Of course, that does not apply to construction costs, which are a different matter, but the cost of gas is as cheap as it has been in years.

Natural Gas              in dollars per million Btu (British thermal units)

Copyright Cameron Hanover, 2009

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