Prices for December 10th, 2009

Market Review for Thursday     

IL prices started out yesterday by moving higher, as traders reacted to the latest unemployment figures, which were slightly disappointing.  That combined with a decline in the Australian unemployment rate to pressure the US dollar lower in early trading yesterday morning ... which, in turn, pushed oil quotes higher.  It was not to be, though, and yesterday’s finishing weakness in oil prices turned out to be the proof of the pudding, as it were.  Prices could have advanced or rallied yesterday, but they failed to do so.  Instead, they declined and, by doing so, they effectively underlined the market’s new trend lower. 

After blindly following extraneous outside influences for most of 2009 – certainly since February or March – the last week or so has seen a rebirth in the importance of the fundamentals and the charts in this complex.  The US dollar seems to have formed an important double bottom, but it has also lost some of its all-consuming ability to trump normal factors.

There was a time, many years ago, when there was a debate over which factors – fundamental (supply & demand) or technical (the charts) – ruled the oil markets.  We even added two parallel or subsets to those by adding psychological and seasonal factors, delighting in describing different markets as being ruled by one, another or some combination of those influences for a number of years.  The last two years and more have introduced us to a completely new set of non-traditional influences.  And, rather than vie with the old, established factors, they moved straight to the front of the line, as trump suits capable of blinding the markets to everything else.

The last week has seen a revival of the traditional influences, and one might be excused for hoping that the return is lasting.  It seems abundantly refreshing to talk about supply, demand, trendlines, support, resistance and now the weather, rather than the dollar or equities to the exclusion of all else. 

Yesterday’s activity was predicated on abundant supplies and struggling demand.  The current situation is succinctly summed up by the year-on-surplus in crude oil, distillate and gasoline inventories of some 55 million barrels.  That feature has given us breakdowns on the charts, and that has generated selling.

Technicals

The oil complex continued moving lower again yesterday, although the final losses were relatively mild.  After the first sustained and significant decline in a long time, we would not be surprised to see prices rally before the weekend, especially in heating oil prices.    

Dollars per barrel

Above:  Crude oil prices have a long consolidation zone above prices, suggesting a decline to lower levels than one might expect.

January crude oil now has buy-stops over $71.40, $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 $69.80, $68.88, $68.00, $65.80-$66.20, and $64.95.  January heating oil has buy-stops over 192.81, 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 188.70, 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 187.70, 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 182.40, 179.20, 177.30, 175.14, 171.40, 170.25, and 168.85. 

Football: The bears gained a yard on first down yesterday, making it second and nine to go today. 

Technical Support & Resistance

Jan crude oil                         Support:             $69.80-$70.15, $68.85-$69.00, $68.00-$68.15, $65.80-$66.20, $64.95-$65.10.

                                           Resistance:        $71.25-$71.40, $73.70-$73.85, $74.25-$74.40, $75.90-$76.10, $77.80-$77.90.

Jan heating oil       Support:             188.70-188.90, 187.00-187.15, 186.50-186.65, 182.60-182.75, 177.00-177.15.

                             Resistance:        192.65-192.81, 200.70-200.85, 202.35-202.50, 204.60-204.75, 208.65-208.80.

Jan Rbob                      Support:             182.40-182.55, 185.20-185.35, 183.90-184.10, 179.20-179.35, 177.30-177.45.

                                           Resistance:        187.55-187.70, 195.16-195.41, 198.50-198.60, 203.77-204.10, 205.10-205.25.

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 5,168 contracts on Wednesday, when prices were lower.  That looks like long liquidation, which would be potentially supportive.

      Heating oil open interest fell by 2,970 contracts on Wednesday, when prices were lower.  That looks like long liquidation, which would be supportive. 

      RBOB open interest fell by 4,678 contracts on Wednesday when prices were lower.  That looks like long liquidation, which would be constructive. 

      Natural gas open interest rose by 3,210 on Tuesday, when prices were lower.  That looks like new selling, which would be bearish. We have had consistently bearish developments from open interest in natural gas for the last few weeks, now.

Wednesday’s Open Interest Changes:  

Crude 1,212,740  dn 5,168       Heat 308,679   dn 2,970       RBOB 236,756  dn 4,678       Nat gas 713,358  up 3,210      

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

Yesterday’s EIA underground natural gas storage report showed a better than expected withdrawal, with 67 bcf removed from facilities.  Expectations had been for an averaged draw of 47-48 bcf.  While this figure fell well short of the five-year average withdrawal of 128.8 bcf, and was less than the eight-year average we have been quoting this year, which came in at a draw of 117.4 bcf, it was on a par with last year’s pull of 67 bcf. 

With timing always such a critical component in futures trading, this week’s withdrawal figure was supercharged by continuing forecasts calling for extended and extensive plunges in temperature readings.  Today’s highs, for example, are not expected to get higher than freezing in the greater Metropolitan New York area, and the wind-chill factor is expected to give us a skin-feel of 12-15°.  This combination of a larger-than-expected storage withdrawal and cold existing temperatures was further bolstered by extended forecasts for sustained cold weather.  This is the kind of confluence that has always brought good buying into the natural gas trading ring – which it did, again, yesterday.  Prices added another 40 cents per million Btu, and they have gained 71.2 cents per million Btu, or 15.53%, since Friday’s close.  Trading volume has come in at more than 300,000 contracts every day, so far this week (reported through Wednesday, up to this point).  We have not had volume of more than 300,000 contracts since October 20th and then on October 14th.  Three straight days may be unprecedented. 

This market always has its biggest moves when past, present and future are aligned through the weather.  By that we mean: Past weather has given us a draw (or a build) in the latest report; it is cold (or hot, depending upon season and movement) at the time, setting up the next report; and expectations for the next week are for more of the same, to give us fresh, additional draws (or builds, as the case may be).  Right now, we have all three time periods lined up on the colder-than-normal, or bullish side, of the ledger.  Cold is expected through Christmas Eve, at this stage.

In cash trading yesterday, Henry Hub prices were at $4.95-$5.13, down $0.22-$0.24 on the day (DJN).  SoCal prices were at $5.25-$5.40, down $0.31-$0.35 on the day.  El Paso Permian prices were down $0.33-$0.34 at $5.00-$5.18.  Katy prices were down $0.15-$0.22 at $4.92-$5.20.  Waha prices were down $0.19-$0.35 at $5.04-$5.15.  Transco 6 was up $0.80-$1.60 at $7.25-$8.35/mmBtu, according to Dow Jones News (DJN).  Cash prices were down on profit-taking, a day late, trying to realign with the lower futures quotes from Wednesday.  It will be higher             

Palo Verde prices were last quoted at $47.00-$50.00/mwh.  Northeastern prices last traded at $49.25-$67.25.  Entergy was last at $46.00-$48.00.  Ercot was last at $44.50-$51.00/mwh. 

Support is at $4.96-$4.99, $4.83-$4.85, $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 $5.31-$5.35, $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:     $4.96-$4.99, $4.83-$4.85, $4.84-$4.86, $4.64-$4.66, $4.40-$4.43, $4.15-$4.17.

                                                    Resistance:     $5.31-$5.35, $5.55-$5.57, $5.62-$5.63, $5.82-$5.86, $5.96-$6.01, $6.15-$6.17

Natural gas prices broke but did not settle above $5.32.

Dollars per million Btu

The crude-to-natural gas ratio  seems to be on the verge of breaking to new recent lows (favoring gas at the expense of crude).

Dollars per million Btu

EIA Weekly Storage Figures

This week’s EIA report showed a draw of 64 bcf on expectations for a draw of 47-48 bcf.  Stocks are now 472 bcf higher than a year ago, against a surplus of 470 bcf a week ago, a surplus of 404 bcf two weeks ago and a surplus of 347 bcf three weeks ago.  Stocks are now 14.30% 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 were for a draw of 47-48 bcf this week.

EIA Report

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

News & Views

China’s industrial output increased by 19.2% in November, exports dropped by their lowest figure in more than a year, and imports were up 26.7%.  India reported an increase of 10.3% in its industrial output figure this morning, which was less than expected.  Observers were talking about China’s increasing role as locomotive of global growth – and recovery – in 2010.

An Illustrated Look at Energy Market Factors

A Look at the US Dollar Versus the Eur

Dollar-Euro (dollar in euro cents):  Six-Month Bar-Chart  

The US dollar was essentially unchanged yesterday.  It looks like prices are forming a potential flag or pennant, although they need to break out to the upside to confirm that.  A break above 68.40 would confirm a double bottom.

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 nearly 69 points yesterday, and prices are still in a strong position to advance further, potentially to remove major resistance overhead and then make new highs.  It would not take all that much.

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

A Look at Temperatures

Source: http://www.weather.com/

A Look at Inventories

Inventories remain at record high levels for this time of year.

A Look at Distillate Supply & Demand

Thirteen-week crude oil imports reached a new low with the latest report.

Recommendations for Specific Market Segments