Prices for December 1st, 2009

Market Review for Tuesday        

IL prices were higher yesterday in response to a weaker US dollar, which came under selling pressure in trading overnight and into Tuesday morning.  The dollar did not make new lows and is still above the now-key support at 66 euro cents, but it did fall far enough to have an influence on oil trading.  And equities were significantly higher, gaining nearly 127 points yesterday.  That also helped prices move higher.  The Dubai World situation seems to have stabilized, and the concerns that were there on Friday seem to have dissipated in light of current plans to restructure the outstanding debt. 

The Institute of Supply Management’s Manufacturing Index fell to 53.6, which was below forecasts and beneath October’s three-year high of 55.7.  Nonetheless, the reading over 50 showed that manufacturing grew in November, for a fourth straight month.  Traders seem to have focused on the positive aspects of these numbers, on the weak dollar and stronger stocks.

In other news yesterday, a Bloomberg survey showed Opec production up to 28.9 million bpd, its highest level in 11 months in November.  The 28.9 million bpd figure represents an increase of 110,000 bpd from October’s survey.  According to Bloomberg , Iraq was the only country to cut output.  Iraq has no quota; the other 11 countries pumped 26.5 million bpd, which is 1.655 million bpd about targets. 

China’s manufacturing increased at its fastest rate in five years last month, which is suggesting that Asia may, indeed, be the locomotive that pulls the world out of recession this time.  HSBC’s Chinese purchasing managers’ index increased to 55.7 to 55.4 in November, it was revealed yesterday.  And India’s economy grew at a 7.9% rate in the third quarter. 

Last night’s API report showed builds in all three major inventory categories and showed very low demand figures.  Refinery utilization was revised lower for last week’s figures and dropped another percentage point, leaving utilization off 2.2% from where the API had it pegged a week ago.  Crude oil imports were also down 1.225 million bpd in this latest set of numbers, but even that could not prevent crude stocks from rising.

Technicals

           Oil prices were higher yesterday, and they are now poised to make an assault on major resistance levels at $82.00 in crude, 212.89 in heating oil and 211.24 in gasoline.  Decisive breakouts above those figures would be bullish and would suggest fresh legs higher.  Of course, these resistance levels have turned back many earlier attempts.

Dollars per barrel

Above:  The refinery crack spread finished yesterday at $7.83, its highest level since August 31st, three months ago.

January crude oil now has buy-stops over $79.05, $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 $77.00, $72.35, $72.00, $70.60, $68.88, $68.00, $65.80-$66.20, and $64.95.  January heating oil has buy-stops over 209.70, 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 204.35, 194.45, 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.  January RBOB has buy-stops over 206.15, 207.62, 209.53, 211.24, 214.00, 222.70, and 228.86.  Sell-stops are under 201.00, 195.00, 192.50, 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 11 yards on fourth and 22, and that gives the bulls a first down today.  These have not worked lately.

Technical Support & Resistance

Jan crude oil                         Support:             $77.00-$77.15, $75.50-$75.65, $72.35-$72.45, $72.00-$72.15, $70.60-$70.75.

                                           Resistance:        $78.90-$79.05, $79.85-$79.95, $80.33-$80.52, $80.95-$81.06, $81.45-$81.60.

Jan heating oil       Support:             204.35-204.50, 199.15-199.25, 194.45-194.55, 193.45-193.60, 192.15-192.25.

                             Resistance:        209.60-209.70, 209.85-210.00, 211.00-211.17, 211.95-212.12, 215.90-216.07.

Jan Rbob                      Support:             201.00-201.20, 195.00-195.15, 192.50-192.65, 191.50-191.65, 190.60-190.70.

                                           Resistance:        205.10-205.25, 206.00-206.15, 207.50-207.62, 209.45-209.53, 211.00-211.24.

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 fell by 18,272 contracts on Monday, when prices were well higher.  That looks like heavy short-covering, which would be bearish.  If short-covering is the main motive force behind recent price increases, it is bearish.

      Heating oil open interest dropped by 4,276 contracts on Monday, when prices were well higher.  That also seems to have been short-covering, which would be bearish.    

      RBOB open interest fell by 6,041 contracts on Monday when prices were higher.  That looks like short-covering, which seems to have been the case across the board.  That would be bearish.

      Natural gas open interest rose by 11,393 on Monday, when prices were lower.  That looks like new selling, which would be bearish.  If we are seeing concentrated, new selling, it would be bearish here.

Monday’s Open Interest Changes:  

Crude 1,198,406  dn 18,272       Heat 316,686   dn 4,276       RBOB 248,803  dn 6,041       Nat gas 714,288  up 11,393  

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 traded inside a 25-cent range yesterday, and finally ended lower on the day, down 8.6 cents.  They were pushed and pulled by conflicting weather forecasts and they ended the session in the middle of the day’s range.  Yesterday’s uncertainty and volatility seems to have been driven by differing temperature outlooks and they were finally pressed into negative territory by the overhang of underground storage, which is nearly 12% higher than it was at this time a year ago and is a little more than 13% higher than the five-year average for this time of year.  The fact that last week’s report made these surpluses larger helped convince traders that this market is more bearish than bullish in yesterday’s trading.

The National Oceanic and Atmospheric Administration (NOAA) is predicting colder-than-normal readings from the central part of the country into the East in December, Dow Jones cited a number of independent forecasters which are calling for everything from colder readings to normal or even above-normal readings for various regions into the middle of this month.  The trend is still for colder-than-normal readings, but its grip on the weather seems to have loosened somewhat from last year.  How temperatures actually arrive over the next few weeks should give us a better indication of what may be coming.

In cash trading yesterday, Henry Hub prices were at $4.20-$4.51, up $0.01 and down $0.10 on the day (DJN).  SoCal prices were at $4.63-$4.87, down $0.03-$0.09 on the day.  El Paso Permian prices were down $0.08-$0.10 at $4.30-$4.50.  Katy prices were down $0.00-$0.05 at $4.30-$4.50.  Waha prices were up $0.00-$0.08 at $4.35-$4.60.  Transco 6 was down $0.13-$0.17 at $4.82-$5.08/mmBtu, according to Dow Jones News (DJN).  Yesterday’s changes were the mildest ones seen in nearly a month.      

Palo Verde prices were last quoted at $40.75-$43.50/mwh.  Northeastern prices last traded at $27.80-$46.00.  Entergy was last at $35.75-$36.25.  Ercot was last at $38.00-$38.50/mwh. 

Now that we are actually in December, the stakes have increased significantly in terms of the temperatures that actually arrive.  This is even more the case once we get past December 15th, when we enter the “heart of winter,” which runs from the second half of December through the end of January.  Those are the statistically coldest months of the year, and they are when heating demand traditionally reaches its peak.  Heating degree-day accumulations mean more in these two months than in other months, and they typically define any winter.  If we are going to get brutally cold weather, it is most likely to be seen in December or January.  With underground storage levels at historically high levels, the temperatures over the next eight or nine weeks will determine what happens with storage levels.  We will have a better understanding of how we will end this heating season, in terms of storage, by the end of January. 

Support is at $4.72-$4.75, $4.65-$4.67, $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 $4.88-$4.90, $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, $4.65-$4.67, $4.40-$4.42, $4.15-$4.17, $4.05-$4.08, $3.73-$3.75.

                                                    Resistance:     $4.88-$4.90, $5.19-$5.21, $5.26-$5.29, $5.31-$5.32, $5.55-$5.57, $5.62-$5.63.

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

Technically, prices seem poised to assault major resistance, but the influence of fundamentals on DOE report days cannot be dismissed.  A weaker dollar and stronger equities remain bullish factors.

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 lower yesterday, although it did not break below the support established last week.  Nonetheless, its weakness was enough to push oil prices higher.  The question, going forward, is whether the factors afflicting the dollar will be enough to press it to new lows, below 66 euro cents.

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 were up almost 127 points yesterday as investors returned to equities markets with renewed vigor.

Prices finished yesterday within striking distance of the recent highs in the DJIA.

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

A Look at Other Charts

The contango of the second month over the first month in crude continues to increase.  Yesterday, it finished at $1.40, its highest level since August 19th.

Jet fuel’s future is tied to distillate.  If we break cleanly to the upside, there will be another leg higher, according to chart theory.

Recommendations for Specific Market Segments