Prices for February 26th, 2010

Market Review for Friday & over the Weekend      

IL prices were higher in trading early Friday morning, as traders reacted to a weaker US dollar.  The greenback was following through on the selloff that had started Thursday afternoon, after failing to break through resistance @ 74.15 euro cents.  The buying in oil picked up pace on news that US Gross Domestic Product (GDP) had grown at 5.9% (annual rate) in the fourth quarter of 2009.  That was the fastest rate of growth for any quarter since the third quarter of 2003.  A month ago, the Commerce Department had estimated fourth quarter, 2009 growth at 5.7%.  On Friday, third quarter GDP growth was confirmed to have been 2.2%.  These figures helped push crude oil prices higher. 

The US dollar also was weaker on Friday, as investors pushed their money into what some are now calling “risk-positive currencies” (Dow Jones).  There was news that the German government had been discussing a possible emergency credit package for Greece.  Those involved refused comment, and sources for the report stressed nothing had been decided, yet.

The UK also reported updated fourth quarter results, showing a 0.3% gain in GDP.  That was better than initially reported, and it suggested that the UK had ended its recession with more momentum than originally believed.  This also boosted oil prices. 

Investors shrugged off an unexpected 7.2% drop in existing American homes sales to a 5.05 million annual pace, against estimates suggesting an increase of 0.9% to a 5.50 million annual rate.  That represents an 8.2% swing against expectations. 

Because of the heavy snowfall, which spun in a circle around Manhattan, many traders and brokers left early or operated from home on Friday, and that added to the volatility in a number of markets.  March refined products had some especially wide bid-and-ask spreads, as a result of Friday’s expiration. 

At this stage, we have to expect longer and more powerful bouts of optimism – and running help from equities or currencies.  There is no legitimate fundamental reason for higher prices, but it is March 1st, so we have to expect to see them.  Reasons have a way of materializing at this time of year.

Technicals

           Crude oil prices were higher on Friday, but they failed to break and settle above $80.51, after six consecutive days of highs over $80.00.  As a result, the bulls need a break and finish over $80.51 to build on recent upward movements.  Heating oil has important resistance at 209.13, and gasoline has resistance at 212.75. 

Dollars per barrel

Above:  Crude oil prices have failed to break over $80.51, with highs over $80.00 for six straight days.

April crude oil now has buy-stops over $80.51, $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 $77.00, $76.30, $73.70, $72.60, $71.30, $70.75, $69.30, $68.55, $68.00, $65.80-$66.20, and $64.95.  April heating oil has buy-stops over 205.00, 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 199.00, 196.40, 190.75, 189.95, 187.45, 186.50, 182.63, 177.00, 176.68, 173.75, 171.10, 170.35, and 168.60.  April RBOB has buy-stops over 219.40, 222.70, 228.86, 240.10, 250.40, 252.00, 265.10, 267.85, and 270.85.  Sell-stops are under 214.50, 203.80, 202.25, 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 15 yards on Friday, on fourth down and 31, which comes up short and gives the bears a first down.

Technical Support & Resistance

Apr crude oil                         Support:             $77.00-$77.20, $76.30-$76.60, $73.35-$73.50, $72.60-$72.75, $76.30-$71.45.

                                           Resistance:        $80.30-$80.51, $80.65-$80.67, $82.20-$82.35, $83.85-$83.95, $84.75-$84.85.

Apr heating oil      Support:             199.00-199.15, 197.95-198.05, 196.40-196.55, 190.75-190.90, 189.95-190.15.

                             Resistance:        204.85-205.00, 207.85-208.00, 209.00-209.15, 210.80-210.91, 211.80-211.90.

Apr Rbob                      Support:             214.50-214.65, 203.50-203.80, 202.25-202.40, 198.40-198.60, 191.85-192.00.

                                           Resistance:        219.30-219.40, 222.60-222.70, 228.75-228.86, 239.95-240.10, 250.25-250.40.

Oil Inventory Reports

 This week’s DOE report has had six of eight years showing draws in both refined products – curiously close – of 1.933 and 1.966 million bbls for distillate and gasoline, respectively (over the six years of draws).  Utilization has been higher in four years and lower in the other four years.  Crude oil imports have fallen in four years out of the last six.  We still have a solid four to eight weeks of turnarounds left, but refiners do seem to have rotated units in and out of service, with the ‘luxury’ of so much spare capacity.  As a result, utilization has not dropped as much – although it is extremely low to begin with.

Last 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.

Last 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.

Last 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 11,304 contracts on Thursday, when prices were lower.  That looks like heavy long liquidation, which would be supportive.  Recent changes in open interest have been consistently positive.

      Heating oil open interest fell by 5,372 contracts on Thursday, when prices were lower.  That looks like long liquidation, and is supportive.

      RBOB open interest fell by 3,528 contracts on Thursday, when prices were lower, which would be long liquidation. 

      Natural gas open interest grew by 9,443 on Thursday, when prices were lower.  Once again, that looks like heavy, new selling, presumably by one or more large funds. 

Thursday’s Open Interest Changes:  

Crude 1,284,924   dn 11,304       Heat 299,658  dn 5,372       RBOB 261,583  dn 3,528       Nat gas 801,500  up 9,443    

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

   Crude oil prices rallied $1.44/bbl over the latest reporting period, and the best buying came from Managed Money accounts.  They bought 14,963 new longs and added 2,900 shorts.  Producers liquidated 16,027 longs but also covered 14,302 shorts.  Other Reportables also covered 8,096 shorts, while liquidating 3,243 longs.  Swap Dealers liquidated 16,820 longs and added 7,358 new shorts and were the only pure sellers.  Managed Money accounts were the best new buyers, but short-covering by Producers and Other Reportables, doubtless leading into the March crude contract expiration, also boosted prices.

    In heating oil futures, prices rallied 3.60 cents a gallon, and the best net buying came from Managed Money accounts, which added 10,901 new longs and covered 5,938 shorts.  The other categories sold into strength, with Producers liquidating 3,741 longs and adding 10,900 shorts, Swap Dealers liquidating 4,838 longs and covering just 6 shorts, and Other Reportables liquidating 3,389 longs and adding 1,411 shorts.  Managed Money was the motive force behind higher prices.

    Gasoline prices gained 7.74 cents a gallon during the period under review.  Managed Money accounts added 13,745 new longs and covered 2,425 shorts, while Other Reportables added 208 new longs and covered 89 shorts.  Producers liquidated 6,016 longs and added 9,891 new shorts into the rise, while Swap Dealers liquidated 2,319 longs and added 593 new shorts.  Funds were the biggest buyers, with commission houses buying very lightly.  Producers were the best sellers.

    In natural gas, prices dropped 53.2 cents during the period under review.  Here, it was cut and dried; Managed Money sold 19,855 new shorts and liquidated 7,655 longs (short 3-to-one).  Other Reportables added 6,111 longs and covered 9,400 shorts, Producers added 2,851 longs and covered 2,900 shorts and Swap Dealers added 2,409 longs and covered 3,041 shorts.  Everyone sees a bargain, here, except the funds pressing quotes lower.  They were the best and only sellers.

Natural Gas & Utility Generation

Natural gas prices rallied on Friday, as traders reacted to the latest weather forecasts, which are calling for colder than normal temperatures through March 11th.  We are supposed to experience more moderate readings this week in the Northeast, but our bet is that it isn’t going to feel especially balmy this week.  The trend is for cold readings.

From Friday through next Thursday, temperatures are predicted to be colder in the Northeast, Midwest, Southeast and in Texas.  That is the pattern that has given us large draws in the recent past.  As far as we can tell, the colder weather trend is alive and well and could provide us with one or even two more good draws that can help build on this season’s positive reports.

There may be some ‘slippage’ in the next two or three reports.  But, right now, underground storage levels are 56 bcf and 2.93% lower than a year ago, and 13 bcf and 0.71% above the five-year average.  For this week, the five-year average is a draw of 112.6 bcf, while a year ago there was a draw of 102 bcf.  Those figures a year ago left storage levels 270 bcf and 17.73% higher than year earlier levels and 218 bcf and 13.84% above the five-year average.  Those figures launched the surpluses that are just now being eaten away.  They justified low prices a year ago; today, the numbers would seem to suggest higher quotes.

Last week’s CFTC report left no doubt about who was selling this market; it was the big funds.  They moved 27,510 contracts to the short side (either through outright short-selling or through liquidating longs).  Producers were buying and covering shorts.  Swap Dealers were buying and covering shorts.  And traditional speculators, trading through commission houses, were buying new longs and covering old shorts to the tune of 15,511 contracts moved to the long side (through buying and short-covering).  Producers – who should be expected to be short and are on a net basis – see bargains here.  Other Reportables are net short and see bargains here.  Swap Dealers are hugely net long, but they were buying as well.  The big funds, short three contracts to each long, were pressing quotes lower, for hidden purposes.

In cash trading yesterday, Henry Hub prices were at $4.72-$4.88, up $0.01 and down $0.04 on the day (DJN).  SoCal prices were at $4.83-$4.94, down $0.08-$0.12 on the day.  El Paso Permian prices were down $0.02-$0.04 at $4.62-$4.80.  Katy prices were up $0.02-$0.09 to $4.72-$4.89.  Waha prices were down $0.03-$0.03 at $4.65-$4.77.  Transco 6 was up $0.00-$0.06 to $5.22-$5.35/mmBtu, according to Dow Jones News (DJN).

Palo Verde prices were last quoted at $42.00-$43.50/mwh.  Northeastern prices last traded at $36.00-$49.50.  Cinergy was last at $39.50-$40.05.  Ercot was last at $40.50-$40.75/mwh.

Support is at $4.73-$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              :     $4.73-$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 were up 4.6 cents on Friday, and prices seem to be finding support at recent levels.

Dollars per million Btu

The longer-term chart looks heavy here, but that does not necessarily mean all that much.

Ratio

EIA Weekly Storage Figures

Last week’s EIA report showed a draw of 172 bcf on expectations for a draw of 169-170 bcf.  Stocks are now 56 bcf lower than a year ago, against a surplus of 26 bcf a week ago, a surplus of 172 bcf two weeks ago and a surplus of 199 bcf three weeks ago.  Stocks are now 2.93% lower than a year ago.  They are 13 bcf and 0.71% above the five-year average.

For this week, the eight-year average (of similar Friday reports) was a draw of 112.38 bcf.  The five-year average was a draw of 112.67 bcf.  Last year’s draw was 102 bcf. 

EIA Report

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

News & Views

As we start the March-to-May seasonal this year, Iran continues to loom large as a potential wild card on the supply side.  The economic recovery is a potentially bullish wild card on the demand side.

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 dropped on Friday, following through on the weakness that started on Thursday when the dollar failed to break over resistance around 74.15 euro cents.  The dollar dropped, but found support around 73.00 cents.  It rallied last night.

   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 on Friday up 4.23 points.

largely in reaction to the latest increase in first-time unemployment claims. 

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

A Look at Selected Spreads

Gasoline is now premium to heating oil, and it is likely to remain that way until next fall.

The crack spread has been relatively quiet recently.  It typically increases in spring, as it lets refiners know that the market needs more gasoline and diesel for the spring and summer.

Recommendations for Specific Market Segments