Prices for February 24th, 2010

Market Review for Wednesday

IL prices were higher yesterday as traders were buying commodities and equities in the wake of Fed Chairman Ben Bernanke’s testimony before the House of Representatives, where he told them that interest rates will remain low for several months yet to come.   This reinforced the arguments for putting money in risk-bearing financial instruments.  Traders were also buying on the DOE report, which showed draws in distillate and gasoline stocks.  The DOE report showed a build in crude, which was the opposite of what the API report had shown.   The API had favored buying crude and selling products, while he DOE suggested just the opposite.

It was one of those days for the US dollar.  It had factors both ways.  The bears were selling in response to the Bernanke testimony. Then, the bulls had an opportunity to buy, after news came out suggesting Greek debt could be downgraded to near “junk” status, or speculative rather than investment grade, by major ratings agencies.  

Mr Bernanke seems to have calmed investor fears, especially in light of the disappointing consumer confidence figure on Tuesday.  There was a larger-than-expected decline in new home sales reported yesterday, and that initially put pressure on a broad group of markets.  Mr Bernanke’s testimony seemed to allay those fears. 

 Total oil supplied over the last four weeks was up 100,000 bpd on the week and was up 239,000 bpd against last year, putting four-week average total oil consumption up 1.27% on 2009.  Last week, that four-week figure was up 0.18% against a year earlier.  As a result, we did see an improvement in overall consumption in this week’s report. 

Four-week gasoline came in at 8.741 million bpd, up 111,000 bpd on the week, and down 0.34% against the same aggregate average in 2009.  One week ago, the same aggregate was down 1.26%.  Four-week distillate demand came in this week at 3.701 million bpd, down 16,000 bpd from last week’s aggregate average.  This week’s average is 6.82% lower than a year ago; last week’s average was 7.35% lower.  Ostensibly, that shows some improvement.

It seems to us that the bulls were back in control by yesterday’s close.

Technicals

           The oil complex rallied yesterday, with crude oil prices breaking above Tuesday’s high – although they could settle above that level.  Both refined products stopped shy of removing Tuesday’s highs, at 208.00 in heating oil and at 211.91 in gasoline.  Those levels need to be broken before prices can continue higher to test their major highs.

Cents per gallon

Above:  Gasoline prices were back up again yesterday, but they did not break Tuesday’s high of 211.91, which is resistance above.

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 201.50, 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 204.55, 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 gained 11 yards yesterday, making it third and 13 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, 201.50-201.80, 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:             204.55-204.70, 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 showed a smaller-than-expected drawdown in distillate stocks, but it showed a drawdown in gasoline stocks, where a build had been expected – and reported by the API.  Crude oil stocks increased by more than had been expected, and were diametrically opposed to the drawdown seen as a lead-in from Tuesday night’s API report.  Where the API had been supportive for crude and disappointing for products, this week’s DOE report could have been seen as being the precise opposite.  At the same time, though, both showed an increase in crude imports and in refinery utilization.

This Week’s Inventory Comparison:  Distillate stocks are now 7.5 million bbls, or 5.17%, higher than a year ago.  Heating oil inventories are 5.8 mln bbls, or 15.72%, higher than they were a year ago.  Gasoline stocks are 14.8 mln bbls (up 6.84%) higher against a year ago.  Crude oil stocks are now 16.7 million bbls, or 4.71%, lower than a year ago.  Residual stocks are 2.2 mln bbls (5.82%) higher than a year ago, jet fuel stocks are 1.7 mln bbls, (4.05%) higher than a year ago.  Utilization is 0.23% lower than a year ago and 5.33% below the eight-year average.  It is 7.50% lower than the four-year, pre-Katrina average and 3.15% below the average of the four years since the big hurricanes (Katrina & Rita) in 2005.

This Week’s Demand:  Four-week, total refined products demand came in at 19.095 million bpd, up 0.100 mln bbls on the week, and up 0.239 mln bpd and 1.27% against a year ago.  Two weeks ago, it was 0.159 mln bpd and 0.83% lower than a year ago.  Four-week gasoline demand is at 8.741 mln bpd, down 0.34%, compared to up 0.32% seven weeks ago.  It was up 111,000 bpd on the week.  Four-week distillate demand is now at 3.701 mln bpd, down 6.82%, compared to down 0.98% seven weeks ago.  Four-week jet demand is now at 1.321 mln bpd, down 1.93% against a year ago, compared to up 8.17% seven weeks ago.  Four-week residual fuel demand is at 0.602 mln bpd, up 4.70%, compared to down 34.14% three weeks ago.   Propane use is up 9.10%, to 1.462 mln bpd.  Gasoline supply increased by 572,000 bpd this week, while demand was up 543,000 bpd on the week.

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 rose by 16,753 contracts on Tuesday, when prices were lower.  That looks like heavy selling, which would be bearish.  It could have been buying into weakness.

      Heating oil open interest fell by 2,131 contracts on Tuesday, when prices were lower.  That looks like long liquidation and would be supportive. 

      RBOB open interest rose by 246 contracts on Tuesday, when prices were lower, which would be light, new selling. 

      Natural gas open interest fell by 10,396 on Tuesday, when prices were lower.  That looks like heavy long liquidation, which would be supportive.  The March contract expired yesterday.

Tuesday’s Open Interest Changes:  

Crude 1,280,235  up 16,753       Heat 304,732  dn 2,131       RBOB 264,553  up 246       Nat gas 794,836  dn 10,396      

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 rallied lightly yesterday, gaining nearly four cents.  There were reports of “bargain-hunting,” and there was short-covering, or profit-taking on short positions, as we closed out the March contract, which expired yesterday afternoon.   Traders were also looking ahead to another large snowstorm, expected in the Northeast and upper Mid-Atlantic regions tonight and into tomorrow, according to Dow Jones.  Traders have been looking to the end of winter since the beginning of February, and major snowstorms tend to curdle the milk of thought in that regard. 

There is a long history of discounting early the end of winter, and these typically end badly with traders buying back short positions during March.  And, while we are sure there have been a number of them, we cannot actually remember a March that was warmer-than-expected.  Even during the disappointingly warm winters of the 80’s and 90’s, years of record warmth, the consistent exception to the winter or even the year always seemed to be March.  In terms of degree-days, March is almost always colder than November; it’s just that one can think one sees the coming of spring in March, while one always sees the coming of winter in November.  Prices typically reflect the reality, even as the conversations seem to follow the psychology of looking ahead. 

Today’s EIA report is expected to show a drawdown of 169-170 bcf, according to Bloomberg and Dow Jones, respectively.  Last year, on the same date, there was a draw of 90 bcf, which is less than the 10 bcf draw reported for the similar Friday in the report released at this stage a year ago.  Both the combinations of specific date-ended and Friday-ended periods show a five-year average drawdown of 132 bcf.  As a result, there seems to be every likelihood that today’s report will eat into the surplus against the five-year average.  It should turn the surplus against a year ago into a deficit.  In any event, we expect more bullish storage comparisons to be possible by lunchtime.  Any return to colder temperature forecasts could be seen as a reason for a rally at that time.

In cash trading yesterday, Henry Hub prices were at $4.88-$5.00, up $0.01-$0.03 on the day (DJN).  SoCal prices were at $5.03-$5.13, up $0.00-$0.01 on the day.  El Paso Permian prices were down $0.02-$0.04 at $4.84-$4.89.  Katy prices were down $0.00-$0.07 to $4.83-$4.90.  Waha prices were down $0.02-$0.06 at $4.83-$4.89.  Transco 6 was up $0.11-$0.13 to $5.45-$5.53/mmBtu, according to Dow Jones News (DJN).  

Palo Verde prices were last quoted at $42.50-$43.50/mwh.  Northeastern prices last traded at $46.75-$49.00.  Cinergy was last at $41.50-$42.75.  Ercot was last at $40.00-$41.50/mwh.

Support is at $4.74-$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 $4.88-$4.89, $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.

Apr Natural Gas:                 Support              :     $4.74-$4.77, $4.64-$4.66, $4.40-$4.43, $4.15-$4.17, $4.05-$4.08, $3.73-$3.75.

                                                    Resistance:     $4.88-$4.89, $4.97-$5.00, $5.16-$5.17, $5.46-$5.47, $5.55-$5.60, $5.71-$5.73.

Natural gas prices rebounded slightly yesterday, but they remain beneath the trendline broken four weeks ago.

Dollars per million Btu

The crude-to-gas ratio was 16.61-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.  Estimates are for a draw of 169-170 bcf.

EIA Report

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

News & Views

Traders were reacting to fresh concerns over European debt this morning.

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, but it was a quiet day, in comparison.  Prices are still in a consolidation range, and last week’s breakout just redefined the upper end of the range.

   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 up 91.75 points yesterday.   

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 8.823 million bpd, down 0.89% against last year.  Thirteen-week supply is at 9.695 mln bpd, down 1.58%.  Thirteen-week implied demand is at 9.529 mln bpd, down 1.65% against a year earlier.

A Look at Distillate Supply & Demand

Thirteen-week demand is at 3.681 million bpd, down 9.67% against last year.  Thirteen-week supply is at 4.039 mln bpd, down 12.13%.  Thirteen-week implied demand is at 4.168 mln bpd, down 6.00%.

A Look at Refinery Utilization

Utilization is 0.23% lower than a year ago and 5.33% below the eight-year average.  It is 7.50% lower than the four-year, pre-Katrina average and 3.15% below the average of the four years since the big hurricanes (Katrina & Rita) in 2005.

Recommendations for Specific Market Segments