Prices for November 24th, 2009

Market Review for Tuesday                  

HE imminent arrival of Thanksgiving seems to have kept traders in a defensive posture yesterday, and this natural reticence was reinforced by a lack of fresh news or movement by equities or currencies.  Gross Domestic Product in the third quarter was revised down from an initial estimate of 3.5% higher to 2.8% higher, which was in line with estimates which expected a revision to a gain of 2.7%.  This was already in the market, to a large extent.  The absence of fresh moves (higher) in equities or (lower) in the dollar allowed oil prices to follow their fundamentals yesterday.

Yesterday’s crude oil settlement was its lowest since October 14th, as oil traders were given a day without a steep decline in the dollar or a sharp rise in equities.  Over the last few sessions, the oil complex seemed to be trying to tell us that it wanted to go lower, and it was only dragged higher, kicking, if not screaming, by a combination of those two.  Oil contracts seem to have decided recently that they represent more of an industrial commodity than an asset class.  Of course, they still are both.

We touched on this yesterday.  And yesterday’s activity seems to have further developed the theme.  Those who have been buying - any and every asset that cheaply-borrowed dollars can buy – seem to have gotten tired of oil’s backsliding on the days when they cannot push equities much higher or the dollar much lower.  And, maybe these investors have decided that putting their money into other currencies, equities and gold is enough, as well as being more of a “sure-thing” – to the extent that any investment ever is.

It is a lesson investors have been slow to learn, largely because they have succeeded in pushing so many commodities higher through their constant buying.  Sooner or later, though, investors are going to learn the hard way that inconvenient things like supply and demand are going to get in the way of their steady asset appreciation when they play commodities like food and fuel.  That is because their steady push higher sends messages to real-world producers and consumers in ways it never can for equities or gold.  The dreadful part of this little learning exercise is that these investors are going to keep pushing these basics higher until they hurt a good many end-users – again.

They could not push oil prices up yesterday, so maybe the lesson is on.

Technicals

           The oil complex was lower yesterday, and crude is at the nexus of major support and its major channel line support.  A break and settle below $75.50 today would be bearish.  Heating oil broke its support at 195.00, but it also has channel line support, which would need to be broken and settled below for a bearish trend to take over.

Dollars per barrel

Above:  The second month contango broke over a dollar for just the second time yesterday since August 19th.

January crude oil now has buy-stops over $77.80, $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 $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 199.00, 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 193.45, 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 198.90, 203.61, 205.25, 207.62, 209.53, 211.24, 214.00, 222.70, and 228.86.  Sell-stops are under 193.00-193.10, 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 15 yards yesterday, on fourth and 37 to go.  The bears take over on downs, today.

Technical Support & Resistance

Jan crude oil                         Support:             $75.55-$75.65, $74.75-$74.90, $74.40-$74.50, $72.80-$72.90, $72.00-$72.15.

                                           Resistance:        $77.70-$77.80, $79.85-$79.95, $80.33-$80.52, $80.95-$81.06, $81.45-$81.60.

Dec heating oil      Support:             193.45-193.60, 192.15-192.25, 188.75-188.90, 186.50-186.65, 182.60-182.70.

                             Resistance:        198.85-199.00, 204.20-204.28, 205.60-205.70, 206.85-207.00, 207.60-207.75.

Dec Rbob                     Support:             193.00-193.15, 191.50-191.65, 190.60-190.70, 190.25-190.40, 186.25-186.40.

                                           Resistance:        198.85-199.10, 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 25,164 contracts on Monday, when prices were mildly higher.  That should be new buying, but half of the session was spent pushing quotes back down.  It is officially bullish – with bearish undertones.

      Heating oil open interest dropped by 3,843 contracts on Monday, when prices were higher.  That looks like short-covering, but the same issue exists here.  A large part of the session saw prices under selling pressure.  Officially bearish – with support.

      RBOB open interest fell by 495 contracts on Monday when prices were lower.  That looks like light long liquidation, although there would have been short-covering in the morning.

      Natural gas open interest fell by 6,400 on Monday when prices were up.  That looks like short-covering, on balance, which would be bearish.

Monday’s Open Interest Changes:  

Crude 1,162,651  up 25,164       Heat 323,635   dn 3,843       RBOB 267,997  dn 495       Nat gas 709,978  dn 6,400       

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 1.3 cents yesterday, making it a fourth day higher in a row, with six of the last eight days higher and seven of the last 10 days higher.  Of course, over that 10-day period, natural gas prices have increased by a stultifying 1.9 cents.  That is a lot of work for not much reward.  Some 14,000 contracts have been liquidated over that period, suggesting net short-covering.  Prior to that time frame, prices had declined for two weeks.  It is pretty difficult to construct a bullish technical picture in the last two weeks, despite what looked like a promising rally after what looked like an extended period of steadfast scaled-down buying.  We are left with a market consolidating above $4.15/mmBtu.

So much of this market’s recent indecisiveness comes from weather forecasts and realities.  Warmer forecasts have not actually arrived (when they were predicted) and colder weather, even when it has arrived, has not been especially cold.  That, of course, is what happens in November.  It does not get especially cold at this time of year.  For genuine winter conditions, one typically has to wait until after December 15th.  Curiously enough, though, that presents us with an opportunity; if we do get any really cold readings before then, it will effectively steal a march on winter. 

In cash trading yesterday, Henry Hub prices were at $3.50-$3.67, down $0.18-$0.18 on the day (DJN).  SoCal prices were at $3.60-$3.87, down $0.18-$0.22 on the day.  El Paso Permian prices were down $0.17-$0.21 at $3.44-$3.65.  Katy prices were down $0.21-$0.22 at $3.48-$3.62.  Waha prices were down $0.14-$0.20 at $3.47-$3.67.  Transco 6 was down $0.17-$0.23 at $3.84-$4.10/mmBtu, according to Dow Jones News (DJN).  Yesterday was the first relatively mild set of changes in about two weeks.  We chalk it up to the holiday, though. 

Palo Verde prices were last quoted at $28.50-$29.50/mwh.  Northeastern prices last traded at $29.50-$39.25.  Entergy was last at $30.50-$31.00.  Ercot was last at $30.75-$31.00/mwh. 

Traders will focus on this week’s EIA underground storage report, which will be released today.   Dow Jones is looking for a build of 5 bcf, while Reuters has a range of estimates from a draw of 2 bcf to a build of 14 bcf.  Based on the same dates, there was a draw last year of 55 bcf, and the five-year average was a draw of 21 bcf.  Using similar Friday reports, we had a draw of 66 bcf last year and a five-year average draw of 32.8 bcf.  The eight-year average is a draw of 25.25 bcf.  It is easy to see that the odds favor an increase in the year-to-year surplus as well as an increase in the surplus against the five-year average, if this week’s report comes in anywhere near expectations. 

Traders will start leaving right after the EIA report is released today.  As a result, it will be all about the report and balancing positions ahead of Friday’s final pre-weekend weather reports.  Many traders will phone it in on Friday.

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.  Dow Jones is looking for a build of 5 bcf in today’s report.

EIA Report

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

News & Views

Heating oil prices dropped yesterday, falling below – and just settling below – the previous recent low at 195.04, touched on 11-13-09.  The channel line stopped the decline, so we need a break below that, too.

DOE Expectations

The table below lists the final survey results for Dow Jones, Bloomberg and Reuters.  The DOE report will be released at 10:30 AM EDT on Wednesday morning this week.

Category    Dow Jones    Bloomberg     Reuters

Crude           up 1.500        up 1.500          up 1.200 mln bbls

Distillate      up 1.200        dn 0.100          dn 0.100

Gasoline      up 0.500        up 0.250          up 0.300

Utilization   up 0.3%      up 0.3%              up 0.3%

DOE History:  Distillate stocks have fallen in five of the last eight years, but the eight-year average is a build of 0.739 mln bbls.  Gasoline stocks have an eight-year average build of 1.443 mln bbls.   Crude oil stocks have an eight-year average draw of 1.078 mln bbls.  Utilization has been higher in seven of the last eight years and has an eight-year average increase of 0.98%, and it has an eight-year average utilization figure of 90.44%.  Crude oil imports have been down 162,000 bpd to an average import figure of 9.995 million bpd over the last six years   

Morgan Stanley predicts an increase in US fourth quarter demand of 700,000 bpd, over the third quarter, this year, compared to historically normal increases of 1.4 million bpd.  It cites Asian and Middle Eastern demand as reasons.

Our next report will be out Monday.  Have a wonderful Thanksgiving and please travel safely.  Thank you.

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 steady yesterday against most other currencies, including the euro.  It continues to hold above major support established 10 sessions ago.  As long as the dollar does not make new lows, that will be bearish for oil – insofar as it does not push oil prices higher and allows the fundamentals to assert themselves.

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 17 points yesterday after making new recent highs the day before.  The trend in this market is higher right now, and equities remain a bullish factor for oil markets.  GDP revision was yesterday’s biggest factor and was neutral.

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

More News

Saboteurs have interrupted the export of crude from Iraq to the Turkish port of Ceyhan by attacking a pipeline on Saturday, it was reported yesterday.  Exports have been suspended until repairs have been completed.  There is no firm timetable for a return to service for the pipeline.  Iraq produces 2.5 million bpd and earmarks 2 million bpd of that for export.  AFP quoted Iraq’s oil minister as having said that Iraq wants to increase its output to “between 10 and 12 million bpd within six years.”

The five permanent members of the UN Security Council will ask the 35-nation board of the International Atomic Energy Agency to condemn Iran for hiding a second, uranium enrichment site.

Russia still expects Iran to accept the special proposal that would have Iran ship its uranium to Russia for enrichment.  Russian spokesperson Andrei Nesterenko said yesterday, “We are counting on a quick [positive] response from Teheran.  Therefore, the question of adopting special sanctions is not relevant.”

Iranian Foreign Ministry spokesperson Ramin Mehamanparast said yesterday, “Iran is not opposed to sending uranium abroad.”  But, he hastened to explain that Teheran wants to give up 3.5% enriched material for processing while having a simultaneous exchange on its soil receiving 20% enriched uranium.  Iran has rejected sending 1,200 kilograms of uranium first to Russia to be enriched to 20% and then to France to be converted into generation fuel before finally returning back to Iran.

Iran can take legal action if Russian manufacturers fail to honor a deal to equip it with an advanced air defense missile system.  Russia has not yet delivered the system, which is for five batteries of S-300 missiles.  Iran says it is six months behind its delivery date and insists that the deal has stalled in the face of US and Israeli opposition to it.  The batteries would presumably be deployed around nuclear sites and have the capability to shoot down missiles or fighter jets.  Delivery and deployment of these batteries could jeopardize any military option if Iran refuses to let Russia and France process its uranium into generation quality material.

A Look at Ethanol Prices

Ethanol prices have eased from recent highs, but have objectives to $2.45, $2.56 and higher.

Recommendations for Specific Market Segments

This is our last report until Monday morning.

We are sincerely grateful for all of our readers and want to thank you for allowing us the privilege of writing this report.

Thank You.

Have an enjoyable Thanksgiving holiday and please travel safely.