Prices for December 9th, 2009

Market Review for Wednesday

ESTERDAY’s activity showed yet another significant break with its recent past, as the DJIA posted gains of more than 51 points and the greenback fell slightly – and oil prices had one of their biggest declines in months.  This week’s DOE report had enough in common with Tuesday evening’s API figures for traders to see them as being bearish.  The automatic buying regimens of money managers for index and long-bias exchange-traded funds was swamped by increases in refined products’ inventories and refinery utilization.  The DOE did not register an increasse in crude oil imports (the way the API report had), but it did show an increase in refinery utilization that was almost the same as the API.

The API had shown a huge implied gasoline demand figure, coming in at 9.838 million bpd.  The DOE could not offer anything near that in its officially reported demand number ((9.012 mln bpd), but the implied demand was higher, at 9.591 mln bpd.  DOE officially reported distillate demand was 3.320 mln bpd, while implied demand came in at 3.948 mln bpd.

The fundamentals have enjoyed an almost major renaissance over the last week or so, as traders have been allowed to revalue (mostly devalue) oil prices without continuous interruptions by plunging US dollar or soaring equities prices.  All three major Nymex-traded oil complex contracts have now broken below the support that prevented them from falling for roughly two months.  We now have markets that seem to be more clearly trending lower, at least over the near terms.  With a total of 55 million barrels more than a year ago in storage right now (between the three contracts), this seems to make more sense. 

Moving forward, the bigger question may be whether this can continue.  In trading overnight, the Australian and Canadian dollars were both higher against the US dollar, partially on a decline in Australian unemployment from 5.8% to 5.7%.  On the other side, though, traders were assessing credit concerns for some euro-zone countries, and the US dollar was stronger against the Japanese yen.  Traders were waiting for the latest signals on US unemployment in trading last night, which were disappointing when released this morning; they showed an increase in claims of 17,000 to 474,000.  Estimates had predicted an increase in claims of 8,000, so this was somewhat disappointing.

Technicals

           All three major contracts had significant breakdowns yesterday, with prices finishing below channel-line support, as well as below the lows seen with the Dubai World scare.  We seem to be seeing some light profit-taking by the shorts this early morning, but the trends, at least near-term, seem to be pointed lower for now. 

Dollars per barrel

Above:  Crude oil prices have now officially broken down below support levels, and they ended at their lowest level since r since 8-17.

January crude oil now has buy-stops over $73.90, $74.40, $76.10, $77.90, $78.59, $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 $70.00, $68.88, $68.00, $65.80-$66.20, and $64.95.  January heating oil has buy-stops over 200.85, 202.50, 204.75, 208.80, 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 190.60, 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 195.41, 198.60, 204.10, 206.15, 207.62, 209.53, 211.24, 214.00, 222.70, and 228.86.  Sell-stops are under 185.20, 183.90, 179.20, 177.30, 175.14, 171.40, 170.25, and 168.85. 

Football: The bears gained 19 yards on first down yesterday, getting yet another set of downs.  It is still first down, bears.

Technical Support & Resistance

Jan crude oil                         Support:             $70.00-$70.15, $68.85-$69.00, $68.00-$68.15, $65.80-$66.20, $64.95-$65.10.

                                           Resistance:        $73.70-$73.85, $74.25-$74.40, $75.90-$76.10, $77.80-$77.90, $78.90-$79.05.

Jan heating oil       Support:             190.60-190.75, 188.75-188.90, 187.00-187.15, 186.50-186.65, 182.60-182.75.

                             Resistance:        200.70-200.85, 202.35-202.50, 204.60-204.75, 208.65-208.80, 209.60-209.70.

Jan Rbob                      Support:             185.20-185.35, 183.90-184.10, 179.20-179.35, 177.30-177.45, 175.10-175.30.

                                           Resistance:        195.16-195.41, 198.50-198.60, 203.77-204.10, 205.10-205.25, 206.00-206.15.

Oil Inventory Reports

 This week’s DOE report followed the API’s lead, at least in some respects.  Both had draws in crude oil stocks, although the API showed a huge increase in crude imports where the DOE showed a decline.  Distillate stocks both gained more than a million barrels, but gasoline stocks were higher in the government numbers and lower in the API statistics.  Both reports showed a decent increase in refinery utilization rates.  In contrast, the API showed a huge implied demand figure in gasoline, while the DOE showed a reported demand number 0.800 mln bpd apart.  DOE implied gasoline demand was 9.591 mln bpd.

     Distillate stocks are now 30.4 million bbls, or 22.20%, higher than a year ago.  Heating oil inventories are 8.7 mln bbls, or 20.76%, higher than they were a year ago.  Gasoline stocks are 11.6 mln bbls (up 5.67%) higher against a year ago.  Crude oil stocks are now 14.1 million bbls, or 4.38%, higher than a year ago.  Residual stocks are 2.2 mln bbls (5.73%) lower than a year ago, jet fuel stocks are 4.6 mln bbls, (12.13%) higher than a year ago.  Utilization is 4.64% lower than a year ago and 9.90% below the eight-year average.  It is 12.18% lower than the four-year, pre-Katrina average and 7.63% below the average after it.

This Week’s Demand:

Four-week, total refined products demand came in at 18.499 million bpd, up 0.008 mln bbls on the week, and down 0.563 mln bpd and 2.95% against a year ago.  Eight weeks ago, it was 0.900 mln bpd and 5.03% higher than a year ago.  Four-week gasoline demand is at 9.016 mln bpd, up 1.22%, compared to up 6.23% eight weeks ago.  Four-week distillate demand is now at 3.541 mln bpd, down 8.34%, compared to down 14.80% four weeks ago.  Four-week jet demand is now at 1.425 mln bpd, down 0.70%, compared to up 0.14% a week ago and 1.61% two weeks ago.  Four-week residual fuel demand is at 0.505 mln bpd, down 7.14%, compared to down 1.19% three weeks ago.   Propane use is up 18.72%, at 1.408 mln bpd, compared to being up 17.63% three weeks ago.  Demand was mostly higher, except for distillate.

This Week’s API Report: 

This week’s API report showed a draw of 5.815 mln bbls in crude oil stocks, a build of 1.011 mln bbls in distillate stocks and a draw of 0.753 mln bbls in gasoline inventories.  Utilization was up 1.3% to 81.4%.  Implied demand came in at a blistering 9.838 mln bpd in gasoline and at 4.060 mln bpd in distillate.  Crude oil imports were up 1.091 mln bpd to 9.541 mln bpd, which led to the big build in crude oil stocks.  That was a bearish figure, with gas demand positive.

                                                                    DOE Weekly Inventory Statistics

Source: US Department of Energy’s Energy Information Administration

Open Interest Analysis

      Crude oil open interest fell by 45,922 contracts on Tuesday, when prices were lower.  That looks like very heavy long liquidation, which would be potentially supportive.

      Heating oil open interest fell by 3,478 contracts on Tuesday, when prices were lower.  That looks like long liquidation, which would be supportive. 

      RBOB open interest fell by 4,266 contracts on Tuesday when prices were lower.  That looks like long liquidation, which would be constructive. 

      Natural gas open interest fell by 19,061 on Tuesday, when prices were higher.  That looks like short-covering, which would be bearish.  We have had consistently bearish developments from open interest in natural gas for the last few weeks, now.

Tuesday’s Open Interest Changes:  

Crude 1,217,908  dn 45,922       Heat 311,649   dn 3,478       RBOB 241,434  dn 4,266       Nat gas 710,148  dn 19,061  

CFTC Commitments of Traders for Nymex  (for the period ended Tuesday, Dec 1st)   

We have changed our section on commitments of traders, and will be modifying into 2010 to deal with new details.

   In the latest CFTC Commitments of Traders report, Producers liquidated 3,886 long and covered 4,217 short futures contracts.  Swap Dealers liquidated 429 long and covered 1,468 short futures contracts.  Other reportables liquidated 6,444 longs and added 2,151 short positions.  And Managed Money accounts added 7,313 new long holdings and covered 2,182 short holdings.  Prices gained 58 cents a barrel during this period and all the new buying came from Managed Money, with short-covering spread out.  ICE crude oil futures showed a much different picture, with producers adding 9,166 new longs and 2,735 new shorts.  Managed Money accounts added 1,892 new longs and 3,977 new shorts.  In that contract, producers were the best buyers and Managed Money was the largest category of sellers.

   In heating oil, combining all platforms, Managed Money accounts were the only ones to add new positions, adding 4,847 new longs and 242 new shorts.  Producers liquidated 3,776 longs and covered 995 shorts.  Swap Dealers liquidated 155 longs and covered 3,312 shorts.  It seems that managed money new buying and swap dealer short-covering were the main factors behind the week’s rise of 4.69 cents a gallon.

    In gasoline, combining all platforms, Producers liquidated 6,663 longs and covered 3,983 shorts.  Swap dealers added 209 new longs and covered 603 shorts.  Managed Money accounts added 5,540 new longs and added 1,588 new shorts.  Other reportables added 306 longs and covered 1,484 shorts.  Here, as well, managed money buying combined with scattered short covering to push quotes up 6.09 cents a gallon.

Natural Gas & Utility Generation

After two days of remarkably heavy volume accompanying higher prices, natural gas prices were lower yesterday as some of the longs looked to take profits.  They have not had so much to feel positive about, here, in a while, so many felt that the gains of 65 cents, over the previous three sessions, could be booked before anything changes much.  Part of this equation included the knowledge that there have been two hugely disappointing underground storage reports, now, in a row.  And, with these two reports adding 123 bcf to the year-on-year surplus, expectations for today’s report were not all that bullish.  The colder temperatures have just arrived, with the bulk still in our future, so any supportive figures are still on the horizon.  Bloomberg is looking for a draw of 47-48 bcf in today’s report.  Dow Jones pegs the draw at 47 bcf.  This compares to last year’s (Friday) drawdown of 67 bcf and a five-year average draw of 128.8 bcf.  As a result, even larger-than-expected draws are likely to increase the surpluses against both the five-year average and against a year ago.  It is going to take at least a week before the temperatures we have now will be reflected in the storage withdrawal numbers, and we are going to need to actually experience everything that has been predicted, first, before any increase in demand can be seen in the weekly report.

Traders are also aware that projected cold temperatures will do nothing to alleviate the losses seen in industrial demand.  Colder readings will certainly give us stronger space-heating demand, and that is sure to be helpful.  But, it is difficult for homeowners to fill in the void left by plants running below capacity or by industries that have shuttered factories.  We do not yet know what portion of demand will be missing from these sources. 

Technically, the extraordinarily heavy volume seen on Monday and Tuesday underlines those day’s advances.  At the same time, though, more than 25,000 outstanding contracts were covered, it appears, in the process of moving higher.  That was a small portion of the increased buying, but it is still worth noting; short-covering is not a sustainable type of buying.

In cash trading yesterday, Henry Hub prices were at $5.19-$5.35, up $0.16-$0.18 on the day (DJN).  SoCal prices were at $5.56-$5.75, up $0.16-$0.23 on the day.  El Paso Permian prices were up $0.17-$0.18 at $5.33-$5.52.  Katy prices were up $0.16-$0.24 at $5.14-$5.35.  Waha prices were up $0.09-$0.25 at $5.23-$5.50.  Transco 6 was up $0.80-$0.90 at $6.45-$6.75/mmBtu, according to Dow Jones News (DJN).  Cash prices were still being supported by colder temperature forecasts yesterday.

Palo Verde prices were last quoted at $53.00-$56.00/mwh.  Northeastern prices last traded at $42.00-$60.50.  Entergy was last at $49.50-$50.00.  Ercot was last at $51.00-$61.00/mwh. 

Support is at $4.96-$4.99, $4.64-$4.66, $4.40-$4.43, $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 $5.14-$5.15, $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.  

Jan Natural Gas:                                Support:     $4.84-$4.86, $4.64-$4.66, $4.40-$4.43, $4.15-$4.17, $4.05-$4.08, $3.73-$3.75.

                                                    Resistance:     $5.14-$5.15, $5.19-$5.23, $5.26-$5.29, $5.31-$5.32, $5.55-$5.57, $5.62-$5.63.

Natural gas prices dropped yesterday on profit-taking.

Dollars per million Btu

Natural gas prices were turned back by resistance below $5.32,ought territory.

Dollars per million Btu

EIA Weekly Storage Figures

Last week’s EIA report showed a build of 2 bcf on expectations for a build of 2-6 bcf.  Stocks are now 470 bcf higher than a year ago, against a surplus of 404 bcf a week ago, a surplus of 347 bcf two weeks ago and a surplus of 350 bcf three weeks ago.  Stocks are now 13.96% higher than a year ago.  They are 487 bcf and 14.54% above the five-year average.

For this week, the eight-year average was a draw of 117.38 bcf.  The five-year average was a draw of 128.8 bcf.  Last year, there was a draw of 67 bcf.  Expectations are for a draw of 47-48 bcf today.

EIA Report

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

News & Views

This morning’s unemployment figure showed an increase in jobless claims of 17,000, against estimates suggesting the increase would come in closer to 8,000.  This was disappointing, although the numbers involved were hardly earth-moving.  Still, the dollar eased after the news, and that brought some light buying into oil.

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 lightly lower yesterday, but the near-term trend is higher and the dollar-euro has double bottom support above 66 euro cents per greenback.  A break over 68.40 euro cents would be bullish.

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 51 points yesterday, which did not do much to bolster plunging oil prices. 

Equities could still establish new highs without much effort, at any time here.

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

A Look at Gasoline Supply & Demand

Thirteen-week demand is at 9.034 million bpd, up 1.23% against last year.  Thirteen-week supply is at 9.826 mln bpd, up 0.13%.  Thirteen-week implied demand is at 9.744 mln bpd, even with last year.

A Look at Distillate Supply & Demand

Thirteen-week demand is at 3.516 million bpd, down 10.68% against last year.  Thirteen-week supply is at 4.172 mln bpd, down 3.02%.  Thirteen-week implied demand is at 4.131 mln bpd, down 8.03%.

A Look at Refinery Utilization

Utilization is 4.64% lower than a year ago and 9.90% below the eight-year average.  It is 12.18% lower than the four-year, pre-Katrina average and 7.63% below the average after it.

Recommendations for Specific Market Segments