Prices for February 23rd, 2010

Market Review for Tuesday        

HE oil complex was lower yesterday as traders took profits on long holdings in oil and investors disgorged risk across the board.  Yesterday’s trading returned to the pattern seen two weeks ago, before Presidents’ Day, when we saw the dollar higher, equities lower and commodities under selling pressure.  There did not seem to be any particular reason for the selling, other than the simple observation that prices had been higher for five consecutive days and nine out of the last 10 sessions.  The “trigger” for this sudden reappraisal seems to have been the imminent arrival of the weekly supply & demand statistics, first from the API yesterday later afternoon or early evening and then again from the DOE this morning. 

Some observers also thought that it might have been the result of the Monday expiration of the March crude oil contract.  After the large decline that pushed prices lower up until two weeks ago, a large number of shorts were hold March positions.  They had been forced to cover those shorts going into Monday’s expiration, but were gone by yesterday.

The thinking by yesterday was more interested in what this week’s supply and demand figures would look like.  Once many of the shorts in the Mach crude contract had covered, there was a natural tendency to revisit the original reasons for their short positions, now that April had become the new spot month.  Of course, once the DOE report has been released today, traders are likely to revisit some of the reasons they have been buying for the last two weeks.  The reasons seem to be on a merry-go-round.

There was news out yesterday that Total is looking to sign an agreement to end the strike at its six French refineries.  This strike had been one of the market’s chief sources of concern, especially for gasoline supplies, and a resolution of this strike would restore some supply certainty for gasoline.

Another reason we had selling yesterday came from a consumer confidence figure that was lower than had been expected.  An ABC poll found consumer confidence down to a four-month low, as stubborn unemployment, slow growth in wages and salaries and persistently high energy costs contributed to a reduction in plans to spend more freely.  Consumers have long been the largest engine of growth in the US economy. This figure hurt equities and commodities.

Technicals

           Traders took profits on long positions yesterday, and there was a general disgorgement of long positions in commodities and equities yesterday, as traders sold risk.  There is nearby resistance at Monday’s highs in this complex.   Major resistance levels are at $83.95 in crude oil, 222.72 in heating oil and at 219.27 in gasoline. 

Cents per gallon

Above:  Heating oil prices have returned their broken trendline and weakened.  The charts are not clear, here on next direction.

April crude oil now has buy-stops over $80.50-$80.67, $82.35, $83.95, $84.83, $85.13, $89.82, $90.99, $93.02, $96.03, and $100.37.  Sell-stops are under $78.20, $77.75, $76.30, $73.70, $72.60, $71.30, $70.75, $69.30, $68.55, $68.00, $65.80-$66.20, and $64.95.  March heating oil has buy-stops over 208.00, 209.15, 210.91, 211.90, 217.55, 222.72, 225.80, 227.05, 229.08, 238.95, 249.62, and 251.50. Sell stops are under 202.15, 201.85, 197.95, 190.80, 189.95, 187.45, 186.50, 182.63, 177.00, 176.68, 173.75, 171.10, 170.35, and 168.60.  March RBOB has buy-stops over 211.91, 212.75, 214.60, 219.27, 222.70, 228.86, 240.10, 250.40, 252.00, 265.10, 267.85, and 270.85.  Sell-stops are under 206.10, 203.50, 198.40, 191.85, 187.00, 184.15, 182.40, 181.20, 179.20, 177.30, 175.14, 171.40, and 170.25. 

Football: The bulls lost 14 yards yesterday on first down.  That makes it second and 24 to go, here.

Technical Support & Resistance

Apr crude oil                         Support:             $78.20-$78.30, $77.75-$77.90, $76.30-$76.60, $73.35-$73.50, $72.60-$72.75.

                                           Resistance:        $80.50-$80.70, $82.20-$82.35, $83.85-$83.95, $84.75-$84.85, $85.10-$85.15.

Mar heating oil    Support:             202.15-202.30, 201.85-202.00, 197.95-198.05, 190.75-190.90, 189.95-190.15.

                             Resistance:        207.85-208.00, 209.00-209.15, 210.80-210.91, 211.80-211.90, 217.45-217.55.

Mar Rbob                    Support:             206.10-206.25, 203.50-203.65, 198.40-198.60, 191.85-192.00, 188.90-189.00.

                                           Resistance:        211.80-211.91, 212.60-212.75, 214.50-214.60, 219.15-219.30, 222.55-222.70.

Oil Inventory Reports

This week’s DOE report has given us drawdowns in both distillate and gasoline stocks over the years, with seven out of eight years showing distillate draws and five out of eight years showing draws in gasoline stocks.  Crude oil stocks have risen in five of eight years.  Utilization has risen in four years and declined in four years, with the declines larger than the gains.  Crude oil imports have declined five out of the past six years this week.  Last week was cold and Monday was a holiday, so those factors may be reflected in this week’s statistics. 

Last Week’s Inventory Comparison:  Distillate stocks are now 8.8 million bbls, or 6.09%, higher than a year ago.  Heating oil inventories are 4.9 mln bbls, or 13.17%, higher than they were a year ago.  Gasoline stocks are 15.2 mln bbls (up 7.01%) higher against a year ago.  Crude oil stocks are now 19.2 million bbls, or 5.43%, lower than a year ago.  Residual stocks are 1.0 mln bbls (2.71%) higher than a year ago, jet fuel stocks are 1.3 mln bbls, (3.14%) higher than a year ago.  Utilization is 2.55% lower than a year ago and 7.11% below the eight-year average.  It is 9.57% lower than the four-year, pre-Katrina average and 4.65% below the average of the four years since the big hurricanes (Katrina & Rita) in 2005.

Last Week’s Demand:  Four-week, total refined products demand came in at 18.995 million bpd, up 0.089 mln bbls on the week, and up 0.034 mln bpd and 0.18% against a year ago.  One week ago, it was 0.159 mln bpd and 0.83% lower than a year ago.  Four-week gasoline demand is at 8.630 mln bpd, down 1.26%, compared to up 0.32% six weeks ago.  It lost 20,000 bpd on the week.  Four-week distillate demand is now at 3.717 mln bpd, down 7.35%, compared to down 0.98% six weeks ago.  Four-week jet demand is now at 1.370 mln bpd, up 1.41% against a year ago, compared to up 8.17% six weeks ago.  Four-week residual fuel demand is at 0.647 mln bpd, up 3.69%, compared to down 34.14% two weeks ago.   Propane use is up 9.65%, to 1.511 mln bpd.  Gasoline supply decreased by 838,000 bpd this week, after gaining 465,000 bpd in last week’s report.

This Week’s API Report:  This week’s API report showed a draw of 3.137 mln bbls in crude oil stocks, a draw of 0.834 mln bbls in distillate stocks and a build of 1.738 mln bbls in gasoline inventories.  Utilization was up 0.9% to 80.8%.  Implied demand came in at a healthy 9.310 mln bpd in gasoline and at a decent 4.306 mln bpd in distillate.  Crude oil imports were up 1.153 mln bpd to 9.192 mln bpd.  Both implied demand figures improved from really dreadful levels reported last week, and imported more crude oil and seemed interested in refining more, as well. 

                                                                    DOE Weekly Inventory Statistics

Source: US Department of Energy’s Energy Information Administration  

Open Interest Analysis

      Crude oil open interest fell by 34,044 contracts on Monday, when prices were higher.  That looks like heavy short-covering, which would be bearish.  Much of that was expiration-related.

      Heating oil open interest grew by 5,574 contracts on Monday, when prices were higher.  That looks like heavy new buying and would be supportive. 

      RBOB open interest rose by 5,892 contracts on Monday, when prices were higher.  That looks like new buying and is supportive. 

      Natural gas open interest grew by 4,848 on Monday, when prices were lower.  That looks like heavy, new selling and is bearish.  Funds continue to sell this market lower.  Some funds have been pressing quotes lower to touch off stops.

Monday’s Open Interest Changes:  

Crude 1,263,472  dn 34,044       Heat 306,863  up 5,574       RBOB 264,307  up 5,892       Nat gas 805,232  up 4,848     

CFTC Commitments of Traders for Nymex  (for the period ended Tuesday, Feb 2nd)   

Crude oil prices rallied $3.26/bbl over the latest reporting period, and the best buying came from Managed Money accounts.  They bought 12,583 new longs and covered 19,037 shorts.  Producers added 3,094 new longs and also added 4,466 new shorts.  Swap Dealers and Other Reportables sold into the higher prices, liquidating 8,557 and 1,648 longs and selling 9,001 and 3,596 new shorts, respectively.  It seems that investment money was flowing into the market on the long side, in response to higher equities, a weaker dollar or stronger economic data, which are what get investment-bank led index funds and ETF’s buying.

    In heating oil futures, prices rallied 5.90 cents a gallon, and the best net buying came from Managed Money accounts, which were buying 556 longs and covering 1,626 shorts.  Producers also covered 10,227 shorts, which would have pushed quotes higher, although they kicked out 8,93 existing longs.  Swap Dealers liquidated 3,499 longs and sold 180 shorts.  Other Reportables liquidated 260 longs and sold 496 new contracts short. 

    Gasoline prices gained 5.92 cents a gallon during the period under review.  Managed Money accounts added 1,740 new longs and covered 1,682 shorts, while Other Reportables added 1,091 new longs and covered 87 shorts.  Producers liquidated 4,066 longs and added 739 new shorts into the rise, while Swap Dealers liquidated 228 longs and added 346 new shorts.  Funds and commission houses were the best buyers and the motivating force behind higher prices. 

    In natural gas, prices gained 2.0 cents during the period under review.  Swap Dealers added 3,204 new longs against 564 new shorts; Other Reportables added 452 new longs and covered 1,937 shorts, and Producers liquidated 2,766 longs, but covered 3,699 shorts.  The net buying from Swaps and Others and short-covering by Producers and Others pushed quotes higher.  Managed Money accounts sold 6,098 new shorts against the purchase of just 244 new longs as prices rose.

Natural Gas & Utility Generation

Natural gas prices were down again, yesterday, losing nearly 12 cents per million Btu.  Prices have broken below the key support at $5.00 (on Monday) and yesterday’s selling seems to have been a technical carry-over from the selling we had on Monday, when prices gapped below the support.  We have noted here recently that there are some large managed money interests holding short positions.  We believe it has been their “timely” selling that has taken prices down into the $4.70’s now.  Today could be volatile, with the March contract expiring this afternoon.

The major factor behind the renewed selling has been come from the temperature outlook, which has moderated in recent days.  At this stage, a number of private forecasts seem to have confirmed National Weather Service (NWS) projections for normal to above-normal temperature readings in the North or in the Northeast as we get into early March.  More of the forecasts seem to be looking at “normal” than “above-normal” readings, but the movement away from temperatures that have been “below-normal” or even “much below normal” has given us profit-taking by longs and a large amount of fresh short-selling by funds.  Of course, as we get nearer tomorrow’s report, traders may start to look ahead to this week’s EIA report.   The five-year average drawdown [from EIA working gas in storage] was 132.4 bcf, according to our records, and we had a draw of 101 bcf last year on the similar Friday.  Any draw of more than 135 bcf will cut into the surpluses (against both a year ago and the five-year average).  We expect to see a draw of 150 bcf or more this week. 

Last week’s EIA report left underground storage levels 26 bcf and 1.30% higher than a year ago.  They are 53 bcf and 2.69% above the five-year average.  These figures leave room for tomorrow’s report to eat away at the year-on-year surplus, potentially turning it into a deficit, and there is a chance that the report will reduce the surplus against the five-year average.  At some point, those factors should get some play in this market.

In cash trading yesterday, Henry Hub prices were at $4.87-$4.97, up $0.01 and down $0.01 on the day (DJN).  SoCal prices were at $5.02-$5.13, up $0.02-$0.03 on the day.  El Paso Permian prices were up $0.06 and down $0.06 at $4.86-$4.93.  Katy prices were up $0.00-$0.02 to $4.83-$4.97.  Waha prices were down $0.02-$0.02 at $4.85-$4.95.  Transco 6 was down $0.01-$0.05 to $5.34-$5.40/mmBtu, according to Dow Jones News (DJN).  

Palo Verde prices were last quoted at $41.00-$43.50/mwh.  Northeastern prices last traded at $35.50-$48.25.  Cinergy was last at $39.50-$40.50.  Ercot was last at $46.50-$47.00/mwh.

Support is at $4.76-$4.77, $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, and $2.69-$2.70.  Resistance is at $4.97-$5.00, $5.16-$5.17, $5.46-$5.47, $5.55-$5.60, $5.87-$5.90, $5.99-$6.03, $6.09-$6.11, $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.

Mar Natural Gas:               Support              :     $4.76-$4.77, $4.64-$4.66, $4.40-$4.43, $4.15-$4.17, $4.05-$4.08, $3.73-$3.75.

                                                    Resistance:     $4.97-$5.00, $5.16-$5.17, $5.46-$5.47, $5.55-$5.60, $5.71-$5.73, $5.87-$5.90.

Natural gas prices continued lower yesterday, as traders continued to sell out long positions.  Someone is pressing this market.

Dollars per million Btu

The crude-to-gas ratio was 16.50-to-one, its highest level since January 4th.

Ratio

EIA Weekly Storage Figures

Last week’s EIA report showed a draw of 190 bcf on expectations for a draw of 187-190 bcf.  Stocks are now 26 bcf higher than a year ago, against a surplus of 172 bcf a week ago, a surplus of 199 bcf two weeks ago and a surplus of 120 bcf three weeks ago.  Stocks are now 1.30% higher than a year ago.  They are 53 bcf and 2.69% above the five-year average.

For this week, the eight-year average (of similar Friday reports) was a draw of 130.50 bcf.  The five-year average was a draw of 132.4 bcf.  Last year’s draw was 101 bcf. 

EIA Report

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

News & Views

This morning’s DOE report will set the stage for most of the rest of today.

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 advanced against the euro yesterday, as traders returned to safety in preference to risk.  Despite the movement higher, prices remain inside a larger consolidation.  They are a little lower today.

   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 ended the day down 100.97 points yesterday.  It was the stock market’s worst result in a week, and it now raises questions about where we might be in relation to a bigger picture.  The chart above could be showing the ending of a rally in a bear market.

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

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