Prices for November 23rd, 2009

Market Review for Monday                   

AMES Bullard (President of the St Louis Federal Reserve Bank) was at it again, talking on Sunday about how the US Federal Reserve may decide to buy mortgage-backed securities beyond the existing cutoff date in an effort to provide the Fed with flexibility in its efforts to keep the economy moving towards full recovery.  These comments, like the ones made last week, were seen as a sign that the US may maintain low interest rates and a devotion to liquidity well beyond what has commonly been accepted as the likely end of the existing cheap money period. 

His comments helped push gold to new record highs and they were the most bullish factor in yesterday’s rather light trading in oil futures.  Once again, investors moved into riskier assets as a hedge against a weaker US dollar and ultimately, inflation.  And the dollar was steeply lower – but it did not break below the major support, which remains intact.  The dollar keeps getting hit (largely by Bullard lately) but it has held above its double bottom formation.  There is still hope for the oil bears.

This hope (for the bears in oil) is even stronger because of the market’s relative ambivalence about yesterday’s proceedings.  Crude oil and heating oil prices were higher yesterday, but not by very much.  And gasoline prices were actually lower.  These are signs that oil is trying to move out of the whole weaker-dollar, stronger-equities, money-to-burn, liquidity orbit.  It is not out of gravitational range, but the activity over the latest week or so is showing us a deep-rooted reluctance to follow blindly. 

Gold is the darling of commodity-philes.  Oil is too much of an industrial commodity, too dependent upon employment and industrial activity just to follow blindly.  Gold and equities are off in some kind of twilight zone advance right now, and the inescapable truth behind Bullard’s comments is that what is bad for the global economy is good for gold and equities right now, right this second, strictly because poor economic numbers keep the liquidity game going.  The only reason Bullard is talking about the Fed still buying mortgage-backed securities and keeping interest rates low is that it sees how poor this recovery really is.  The moment that the recovery can stand up on its own, the liquidity play starts to die.  Oil needs more; it needs real economic recovery and demand.

Technicals

           The oil complex was mixed to higher yesterday, with crude oil and heating oil prices higher this time and gasoline the one that was lower.  Prices were substantially higher in early trading yesterday, but they sold off and finished weakly by the close.  The big question is what effect liquidity will have on oil trading going forward.

Cents per gallon

Above:  Gasoline prices have had a very hard time trying to break over resistance up to 211.24, over a number of months.

January crude oil now has buy-stops over $79.92, $80.33-$80.52, $81.06, $81.58, $82.00, $84.83, $85.13, $89.82, and $90.99.  Sell-stops are under $77.15, $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 204.30, 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 197.00, 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 203.61, 205.25, 207.62, 209.53, 211.24, 214.00, 222.70, and 228.86.  Sell-stops are under 197.45, 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 gained one yard yesterday, on third and 38, and that makes it fourth and 37 to go here.

Technical Support & Resistance

Jan crude oil                         Support:             $77.15-$77.25, $76.75-$76.85, $76.20-$76.45, $75.55-$75.65, $74.75-$74.90.

                                           Resistance:        $79.85-$79.95, $80.33-$80.52, $80.95-$81.06, $81.45-$81.60, $81.75-$82.00.

Dec heating oil      Support:             197.00-197.15, 196.30-196.50, 195.85-195.90, 195.00-195.15, 193.90-194.10.

                             Resistance:        204.20-204.28, 205.60-205.70, 206.85-207.00, 207.60-207.75, 209.05-209.20.

Dec Rbob                     Support:             197.45-197.60, 194.40-194.55, 191.50-191.65, 190.60-190.70, 190.25-190.40.

                                           Resistance:        198.95-199.10, 201.65-201.75, 202.15-202.30, 203.17-203.61, 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 grew by 1,827 contracts on Friday, when prices were lower.  That looks like light new selling and is bearish.  It is unusual to see open interest grow on the final day of expiration.

      Heating oil open interest dropped by 1,368 contracts on Friday, when prices were lower.  That looks like long liquidation, which would be supportive. 

      RBOB open interest fell by 45 contracts on Friday when prices were higher.  That looks like light short-covering, which would be bearish, lightly.

      Natural gas open interest grew by 5,052 on Friday when prices were up.  That looks like good, new buying, which would be supportive.

Friday’s Open Interest Changes:  

Crude 1,137,487  up 1,827       Heat 327,478   dn 1,368       RBOB 268,492  dn 45       Nat gas 716,378  up 5,052            

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 were up 4.9 cents yesterday, making it a third day in a row with moderate gains.  Traders were reportedly covering short positions ahead of today’s December contract expiration, and there was also buying based on forecasts calling for cold weather.  The National Weather Service (NWS) is calling for colder-than-normal readings in the first week of December, and temperatures have been and are expected to remain on the colder side as we finish November.  We have had a couple of much warmer-than-normal days this month, but those seem to have been anomalies and most days have been colder than usual.  The trend towards colder readings started a year ago seems to be very much in place.

As we get ready to start the winter proper, which typically begins right around the middle of December, traders have to weigh existing storage levels against weather forecasts and indications.  We continue to believe that the trend in temperatures is the most important factor going forward.  We also feel that storage levels, although ample, have been largely discounted already.  This week’s EIA underground storage figures will be instructive, because they will be compared against year-ago levels and multi-year averages that were all lower.

In cash trading yesterday, Henry Hub prices were at $3.68-$3.85, up $0.48-$0.68 on the day (DJN).  SoCal prices were at $3.82-$4.05, up $0.59-$0.70 on the day.  El Paso Permian prices were up $0.37-$0.71 at $3.65-$3.82.  Katy prices were up $0.58-$0.67 at $3.70-$3.83.  Waha prices were up $0.70-$0.70 at $3.67-$3.81.  Transco 6 was up $0.62-$0.81 at $4.07-$4.27/mmBtu, according to Dow Jones News (DJN).  On Friday, prices dropped in big “chunks;” yesterday, they were up in even bigger blocks.  The cash natural gas market is now moving in huge increments – on the slightest provocation.

Palo Verde prices were last quoted at $33.00-$34.50/mwh.  Northeastern prices last traded at $36.50-$41.50.  Entergy was last at $31.50-$32.75.  Ercot was last at $29.00-$32.00/mwh. 

We have noted the very odd tendency of cash market prices over the last two weeks or so to shoot up or down in large number blocks of half a dollar or more, and this has now become a fairly regular feature in this market each day.  This shows an underlying volatility that could flow over into futures, especially if we see any sudden or sustained periods of cold ushered in.  Of course, the inverse is true, although statistically less likely – that we could see sudden or prolonged weakness in cash translated to futures in the event of an abnormally warm spell.  It just seems that sudden cold is more likely with us just about to enter December.  The bottom line is the same, though: Temperature changes will be the biggest variable in a market well–supplied with reserves in underground storage.  And one look at a calendar awards this particular battle to the bulls.  It is going to be cold at some point this winter, we expect.

Support is at $4.72-$4.75, $4.40-$4.42, $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 $4.93-$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 slightly yesterday.

Dollars per million Btu

Jan Natural Gas:                                Support:     $4.72-$4.75, $4.40-$4.42, $4.15-$4.17, $4.05-$4.08, $3.73-$3.75, $3.66-$3.68.

                                                    Resistance:     $4.93-$4.99, $5.05-$5.06, $5.19-$5.21, $5.26-$5.28, $5.31-$5.32, $5.55-$5.57

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

Germany’s Foreign Minister, visiting Jerusalem today, insisted “A nuclear arming of Iran is not acceptable.”  He said that negotiations are still preferred, but noted, “The patience of the international community is not endless.”  Iran has taken a very hard line, saying that the West must cooperate with it or risk the consequences.  It sees nuclear development as a right.

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 dropped sharply against the euro yesterday but, once again, it did not break down to fresh lows.  The double bottom formation built about eight or nine sessions ago remains intact.  The dollar was lower, but it still held major support. 

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 was up almost 133 points yesterday, closing well above 10,000 (at 10,450.95) and it seems capable of advancing to new highs.  Its effect on oil prices was relatively subdued.

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 we are not doing a report on Thanksgiving Day and are taking Friday off.

We will be doing a report for Wednesday and then our next report will be out Monday, November 30th.

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.