Prices for November 27th, 2009

Market Review for Wednesday, Friday & the Weekend

IL prices and natural gas prices shot higher on Wednesday, as traders reacted to a slew of positive economic news that earnestly suggested some genuine improvement, ultimately, in final demand.  While the news helped out stock markets, the DJIA only gained 30.69 points.  The US dollar started out the day stronger, but it sold off later in the day, finally breaking support.  The interesting part was that currencies and equities were reacting to the same news and factors that oil prices were – rather than it being a case of oil prices rising on liquidity-oriented moves in equities and currencies. 

Wednesday’s slate of economic news started with unemployment claims coming in at 466,000, which was unexpectedly better, with expectations centering on claims of half a million.  It had been at 501,000 the previous week and the four-week average is now at 496,500 against a figure of 513,000 the previous week.  While it is still largely a matter of being “less bad,” last week’s figure represented some encouraging improvement.  Continuing claims were also down 190,000.

The US economy may have lost 125,000 jobs in November, the lowest figure since March, 2008, Bloomberg postulated on Wednesday.  Also out on Wednesday, US corporate profits were reportedly up by an annualized rate of 50% in the third quarter, according to preliminary data released by the Commerce Department.  The bullish economic news hurt the US dollar, which finally broke down below its major support.  It now has a basic swing objective to the 65.80 euro cents zone.  After holding up under direct assaults by the liquidity investment  machine, Wednesday's breakdown came as a surprise, on a day when many traders and investors were thinking more about Thanksgiving traffic than about the implications of bullish economic news on the US dollar.

Last week’s DOE report was essentially neutral, but it was much more supportive than Tuesday night’s API report.  The DOE showed smaller builds and less of an increase in utilization rates. 

On Friday, oil prices sold off sharply, as traders and investors reacted to news that Dubai World might have to default on up to $80 billion worth of loans.  Equities plunged more than 154 points, and crude was down more than $5 before rallying later in the session.  The dollar also rallied on Friday.

Technicals

           The oil complex had two very wild days, one higher and one lower, and both were not typical of this holiday period.  Many traders missed both days, and we return to start this new week trying to sort it all out.  Prices broke below important support on Friday, but they rallied before the day ended and they finished above support. 

Cents per gallon

Above:  Ethanol prices have had a mild correction recently, but they still have objectives to $2.45 and then to $2.56.

January crude oil now has buy-stops over $78.10, $79.95, $80.33-$80.52, $81.06, $81.58, $82.00, $84.83, $85.13, $89.82, and $90.99.  Sell-stops are under $72.35, $72.00, $70.60, $68.88, $68.00, $65.80-$66.20, and $64.95.  December heating oil has buy-stops over 200.16, 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, 187.00, 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 198.60, 200.00, 203.61, 205.25, 207.62, 209.53, 211.24, 214.00, 222.70, and 228.86.  Sell-stops are under 191.50, 190.60, 190.00-190.25, 186.70, 186.25, 183.90, 179.20, 177.30, 175.14, 171.40, 170.25, and 168.85. 

Football: The bears lost 19 yards on first down and gained them on second, making it third and 10 to go, today. 

Technical Support & Resistance

Jan crude oil                         Support:             $75.50-$75.65, $72.35-$72.45, $72.00-$72.15, $70.60-$70.75, $68.85-$68.95.

                                           Resistance:        $77.90-$78.10, $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, 187.00-187.15, 186.50-186.65.

                             Resistance:        198.15-198.30, 198.85-199.00, 204.20-204.28, 205.60-205.70, 206.85-207.00.

Dec Rbob                     Support:             193.00-193.15, 191.50-191.65, 190.60-190.70, 190.25-190.40, 186.70-186.85.

                                           Resistance:        198.85-199.10, 201.65-201.75, 202.15-202.30, 203.17-203.61, 205.10-205.25.

Oil Inventory Reports

      Last week’s DOE report showed builds in crude oil and gasoline stocks and had a drawdown in distillate stocks.  Refinery utilization increased, which it tends to do over the final five or six weeks of any year.  This week has produced just one decline over the last eight years.  In two years, it was unchanged, but the average has been an increase of 0.74%.  Year-on-year surpluses all dropped last week, with crude stocks seeing their surplus fall from 20.6 mln bbls to 19.5 mln bbls, distillate’s surplus went from 36.5 to 34.1 mln bbls and the gasoline surplus dropped from 10.6 mln bbls to 9.6 mln bbls.

     Distillate stocks are now 34.1 million bbls, or 25.68%, higher than a year ago.  Heating oil inventories are 10.2 mln bbls, or 24.64%, higher than they were a year ago.  Gasoline stocks are 9.6 mln bbls (up 4.79%) higher against a year ago.  Crude oil stocks are now 19.5 million bbls, or 6.13%, higher than a year ago.  Residual stocks are 2.0 mln bbls (5.14%) lower than a year ago, jet fuel stocks are 4.3 mln bbls, (11.29%) higher than a year ago.  Utilization is 5.95% lower than a year ago and 10.19% below the eight-year average.  It is 12.38% lower than the four-year, pre-Katrina average and 8.00% 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 400 contracts on Wednesday, when prices were sharply higher.  That looks like light, net new buying, which would be constructive.  It was not much of a net change.

      Heating oil open interest was up by 1,491 contracts on Wednesday, when prices were steeply higher.  That looks like new buying, which would be supportive.  It was not that much new buying for the size of the move, though. 

      RBOB open interest fell by 1,895 contracts on Wednesday when prices were higher.  That looks like short-covering, which would be bearish.  That would be bearish.

      Natural gas open interest fell by 6,318 on Wednesday, when prices were higher.  That looks like heavy short-covering, which would be bearish.

Wednesday’s Open Interest Changes:  

Crude 1,182,954  up 400       Heat 326,992   up 1,491       RBOB 255,514  dn 1,811       Nat gas 701,124  dn 6,318          

Last week’s figures delayed because of the holiday.

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 the only member of the energy complex to post gains on both Wednesday and Friday.  On Wednesday, prices were up almost 40 cents per million Btu.  On Friday, prices were up almost three cents.  Wednesday’s gain seems to have come from the general sense that the economy is genuinely improving, and some observers are predicting some rapid changes in the employment picture as we end this calendar year.  More than anything else, genuine improvement on the employment front would suggest real economic improvement.  While the Dubai World loan default possibility hurt other commodities, it did not seem to have a lasting impact on natural gas prices.  Economic improvement did.

Natural gas prices did sell off in early trading on Friday, amid the general sense of panic in energy and commodities markets.  But, unlike most of the other markets, gas prices managed to finish in positive territory as buying came in at what seemed like sudden bargain prices.  Cold weather forecasts were the leading factor, especially after last week’s EIA underground storage figures.  These were indisputably bearish, and they helped increase the surplus in storage against both last year’s figures as well as against the five-year average for this time of year. Prices were able to rally despite the storage numbers.

In cash trading Wednesday, Henry Hub prices were at $3.13-$4.00, up $0.33 and down $0.37 on the day (DJN).  SoCal prices were at $3.38-$4.15, up $0.28 and down $0.22 on the day.  El Paso Permian prices were up $0.65 and down $0.24 at $3.20-$4.30.  Katy prices were up $0.63 and down $0.37 at $3.11-$4.25.  Waha prices were up $0.58 and down $0.37 at $3.10-$4.25.  Transco 6 was up $0.40 and down $0.17 at $3.67-$4.50/mmBtu, according to Dow Jones News (DJN).  There were no new quotes released on Friday, and Wednesday’s cash quotes were mixed, as the numbers above reveal. 

Palo Verde prices were last quoted at $29.00-$31.75/mwh.  Northeastern prices last traded at $31.50-$35.90.  Entergy was last at $30.50-$31.00.  Ercot was last at $30.75-$31.00/mwh. 

Whether traders stayed home at the end of last week or were watching this market, there was a great deal to digest.  There was a veritable feast of factors for Thanksgiving week.  On Wednesday, there were a number of economic factors that suggested genuine improvement, instead of the usual funny-money stuff that has been driving oil and gold prices for so much of the year.  The fact that the surpluses, against both a year ago and against the five-year average, increased last week and was overwhelmed by the economic news speaks volumes.  And the market’s ability to come back on Friday, when so many other markets finished lower, leaves us with a definite impression that this is a market getting ready to move higher.  Technically, a decisive break above $5.318 would give us a swing objective up to $7.066/mmBtu.  We already have objectives to the $5.90’s, but we need a breakout over $5.32 first.  Last week was bullish.

Support is at $4.80-$4.82, $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 $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:     $4.80-$4.82, $4.72-$4.75, $4.40-$4.42, $4.15-$4.17, $4.05-$4.08, $3.73-$3.75.

                                                    Resistance:     $5.19-$5.21, $5.26-$5.29, $5.31-$5.32, $5.55-$5.57, $5.62-$5.63, $5.82-$5.86.

EIA Weekly Storage Figures

Last week’s EIA report showed a build of 2 bcf on expectations for a build of 5 bcf.  Stocks are now 404 bcf higher than a year ago, against a surplus of 347 bcf a week ago, a surplus of 350 bcf two weeks ago and a surplus of 379 bcf three weeks ago.  Stocks are now 11.77% higher than a year ago.  They are 442 bcf and 13.03% above the five-year average.

The five-year average for this week has been a draw of 62.0 bcf, while the eight-year average has been a draw of 59.5 bcf.  Last year’s draw was 64 bcf.  The surplus increased against both last year and the five-year average last week.

EIA Report

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

News & Views

The markets seem to have gotten beyond the initial shock of Dubai World asking for a six-month moratorium on repayment of its loans, with $2 billion due today.  We will learn more as the week progresses, but the initial reaction seems to be a return to normal.  It no longer seems as big a threat … at least as of last night.

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 on Wednesday, and then it rallied on Thursday and Friday, effectively canceling out Wednesday’s weakness.  It is very difficult to know which signal we should follow from here.  It is going to take time to figure out where we really are with this market. 

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 154 points on Friday after making new recent highs last week.  As is the case with a number of other markets, this market is thoroughly confused technically right now.  It is very difficult to tell which signals are operative.

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

More News

Despite dreadfully high unemployment, incomes managed to increase by 0.2% in October and consumer spending rebounded by 0.7% after having fallen by 0.6% in September.  A number of retailers reported a strong start to the quarter, with the best month, historically, still waiting for them at the end of the three-month period.  Analysts continue to worry about 2010, if consumer spending cannot post more powerful gains, but some more upbeat observers feel that any serious inroads into unemployment could set the stage for a more complete recovery.  There was an increase in incomes of 0.2% in September as well, and October’s 0.2% increase beat expectations (for a gain of 0.1%).  Adjusted for inflation, spending increased by 0.4% after falling by 0.7% in September. 

The US Department of the Interior will hold 38 auctions for leases on federal lands for oil and gas drilling.  Interior Secretary Ken Salazar said recently, “We continue to make more of our domain available for oil and gas development,” although the number of acres available has fallen over the last three years.  In the fiscal year ended September, 2007, 4.85 million acres were auctioned for development.  That dropped to 3.88 million acres in fiscal 2008 and to 3.80 million acres in fiscal 2009.  There have been 32 separate auctions, covering roughly 2.7 million acres since January, Bloomberg reported recently.

The EIA noted in a recent report that there may be as much as 2 million bpd of unneeded refining capacity in the United States from October through January.  As a result, the government does not believe that refinery outages are likely to create any temporary outages during the heart of this winter.  Valero plans to close its Delaware City, Delaware (190,200 bpd) refinery because of losses.  Sunoco halted production at its Eagle Point refinery indefinitely, and Valero shut its Aruba refinery on July 16th.  Earlier this month, Western Refining announced plans to close its Bloomfield, New Mexico refinery.

As we start this new week, the big question is whether the Dubai World problem was overblown on Friday or if it becomes a bucket of ice water that cuts off funds to emerging markets and becomes a major sovereign default crisis.  We will learn more as this week develops.

The IAEA voted last week to censure Iran over the development of its second, secret nuclear enrichment site.  White House spokesperson Robert Gibbs said, “Our patience and that of the international community is limited, and time is running out.”  The resolution demands that Iran suspend construction on the second plant.  Iran said that the resolution “shall jeopardize the conducive environment” and raises questions about the “good will of other parties in following up the path of interaction” over Iran’s nuclear program. 

A Look at Refining Margins

Refining margins have been trending below normal for the last three months.

A Look at Gasoline Supply & Demand

Thirteen-week demand is at 9.075 million bpd, up 1.27% against last year.  Thirteen-week supply is at 9.819 mln bpd, down 0.51%.  Thirteen-week implied demand is at 9.813 mln bpd, up 0.19%.

A Look at Distillate Supply & Demand

Thirteen-week demand is at 3.510 million bpd, down 11.63% against last year.  Thirteen-week supply is at 4.190 mln bpd, down 2.92%.  Thirteen-week implied demand is at 4.124 mln bpd, down 8.19%.

A Look at Refinery Utilization Rates

Utilization is 5.95% lower than a year ago and 10.19% below the eight-year average.  It is 12.38% lower than the four-year, pre-Katrina average and 8.00% below the average after it.

Recommendations for Specific Market Segments