Prices for March 17th, 2010

Market Review for Wednesday 

WEAKER US dollar and a general desire by investors to buy riskier assets helped push oil prices higher yesterday.   The dollar seemed to have broken below significant support yesterday, but prices rallied back to close above that line, and they were higher in trading last night.  There was no real hot-button item pushing prices higher yesterday, even though Opec met – and left both quotas and output levels 2 million bpd above those targets unchanged – and we had a DOE report – which showed a seasonally normal raft of statistics.  Crude oil inventories were higher, right near expectations, and refined products stocks were lower, and they beat estimates.  As a result, yesterday’s report was more bullish than bearish.  Utilization was slightly lower, falling one-tenth of a percent.

Investors were still reacting to the Standard & Poor’s decision to remove Greece from its ratings watch list and to the Federal Reserve’s continuing insistence that it still plans to keep interest rates low “for an extended period.” 

Expiring (in this case April) crude oil prices settled at their highest level since January 6th.  The high settlement reached on that day was $83.18, and a settlement above that would leave prices at their highest level since the settle at $86.59 on October 9th, 2008.  We already have buy-stops over last week’s intraday high at $83.16; the $83.18 high settlement means that a finish above $83.20 would tick off a number of boxes for the bulls and would, at the same time, trigger defensive buy-stops by shorts looking to limit losses.

Opec left its output quotas unchanged at its semi-annual, scheduled meeting in Vienna.  The cartel has been holding a number of extraordinary meetings as a matter of course in recent years.  The organization has been producing roughly 2 million bpd more than outlined by its output targets in recent weeks, but no one wants to rock the boat.  Opec’s ministers are thrilled with prices at current high levels, and they feel that their decision to trim output, after prices dropped from $147 to less than $35, was the critical factor behind the market’s existing “stability.”  That word, in Opec’s lexicon, means slowly appreciating prices even if they are already too high to promote any additional economic growth.    

Technicals

        Crude oil prices are now within hailing distance of breaking over $83.18 and, if they can settle above that, it would represent a major breakout.  Heating oil got up to 214.40 yesterday, with major resistance now at 214.42.  A break above that would point towards an assault on the resistance up to 222.72.  Gasoline had its highest settlement since October 1st, 2008, and just needs to settle over 231.34 to trigger a fresh leg higher.

Dollars per barrel

Above:  The crack spread (7:5+2) finished at $12.04/bbl yesterday, its highest level since $12.07 on March 8th (highest since August).

April crude oil now has buy-stops over $83.18, $83.95, $84.83, $85.13, $89.82, $90.99, $93.02, $96.03, and $100.37.  Sell-stops are under $81.70, $79.30, $78.00, $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 214.42, 217.55, 222.72, 225.80, 227.05, 229.08, 238.95, 249.62, and 251.50. Sell stops are under 211.25, 204.50, 201.55, 200.55, 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 231.50, 240.10, 250.40, 252.00, 265.10, 267.85, and 270.85.  Sell-stops are under 228.00, 221.70, 219.00-219.10, 215.50, 213.70, 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 bears lost 12 more yards yesterday on second and 29 to go, and that makes it third and 41 to go today.

Technical Support & Resistance

Apr crude oil                         Support:             $81.70-$81.85, $80.80-$81.00, $80.15-$80.30, $79.30-$79.50, $78.00-$78.10.

                                           Resistance:        $83.00-$83.18, $83.85-$83.95, $84.75-$84.85, $85.00-$85.15, $89.75-$89.82.

Apr heating oil      Support:             211.25-211.40, 207.85-209.00, 206.60-206.75, 206.00-206.20, 205.40-205.55.

                             Resistance:        214.30-214.42, 217.45-217.55, 222.65-222.75, 225.65-225.80, 226.90-227.05.

Apr Rbob                      Support:             228.00-228.15, 225.00-225.10, 223.80-224.10, 221.70-221.90, 219.00-219.15.

                                           Resistance:        231.35-231.50, 239.95-240.10, 250.25-250.40, 251.80-252.00, 264.90-265.10.

Oil Inventory Reports

This week’s DOE report essentially followed the seasonal script for this time of year, giving us a build (near expectations) in crude oil stocks and draws (slightly larger than generally expected) in refined product inventories.  Refinery utilization was lower.  All of these developments were bullish for refinery margins or crack spreads.  Although the refined products inventory draws were larger than the average of expectations, they were within our ranges, so we would hardly call them surprises.  This was a comparatively mild report, especially in comparison with those we have seen over the last few months.

This Week’s Inventory Comparison:  Distillate stocks are now 2.9 million bbls, or 2.00%, higher than a year ago.  Heating oil inventories are 3.8 mln bbls, or 10.38%, higher than they were a year ago.  Gasoline stocks are 11.3 mln bbls (up 5.23%) higher against a year ago.  Crude oil stocks are now 14.8 million bbls, or 4.12%, lower than a year ago.  Residual stocks are 0.2 mln bbls (0.51%) lower than a year ago, jet fuel stocks are 0.8 mln bbls, (1.89%) higher than a year ago.  Utilization is 1.50% lower than a year ago and 6.41% below the eight-year average.  It is 8.70% lower than the four-year, pre-Katrina average and 4.12% 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 19.347 million bpd, down 0.065 mln bbls on the week, and up 0.654 mln bpd and 3.50% against a year ago, reportedly.  Five weeks ago, it was 0.159 mln bpd and 0.83% lower than a year ago.  Four-week gasoline demand is at 8.947 mln bpd, up 1.15%, compared to down 1.26% four weeks ago.  It was up 82,000 bpd on the week.  Four-week distillate demand is now at 3.725 mln bpd, down 3.07%, compared to down 9.08% six weeks ago.  Four-week jet demand is now at 1.289 mln bpd, down 6.59% against a year ago, compared to up 8.17% ten weeks ago.  Four-week residual fuel demand is at 0.588 mln bpd, up 7.89%, compared to up 25.96% one week ago.   Propane use is up 7.34%, to 1.330 mln bpd.  We are still concerned about the DOE’s figures.  According to the figures for all products supplied, released a year ago, this year’s total four-week average would be up 1.18% on the year, rather than up 3.50%.

This Week’s API Report:  This week’s API report showed a build of 0.403 mln bbls in crude oil stocks, a draw of 0.756 mln bbls in distillate stocks and a draw of 3.654 mln bbls in gasoline inventories.  Utilization was up 0.4% to 81.3%.  Implied demand came in at a very healthy 9.850 mln bpd in gasoline (second strong week in a row) and at a decent 4.153 mln bpd in distillate.  Crude oil imports were down a stunning 1.225 mln bpd to 7.917 mln bpd.  Crude imports are at post storm levels.

                                                                    DOE Weekly Inventory Statistics

Source: US Department of Energy’s Energy Information Administration  

Open Interest Analysis

   Crude oil open interest grew by 12,030 contracts on Tuesday, when prices advanced.  That looks like new buying and is supportive.  Open interest has increased by 83,419 contracts since March 1st.  Index funds and ETF’s have been the best buyers.

      Heating oil open interest rose by 5,918 contracts on Tuesday, when prices were higher.  That looks like new buying and would be supportive.  Open interest has increased by 31,813 contracts since March 1st.

      RBOB open interest grew by 10,370 contracts on Tuesday, when prices were higher, which looks like fresh buying.  Open interest is up 51,243 since March 1st.  The best buying has come from managed money or funds.

      Natural gas open interest fell by 4,972 on Tuesday, when prices were lower.  That looks like long liquidation, which is theoretically supportive.  Open interest has increased by 43,317 contracts since March 1st.  The best selling came from funds. 

Tuesday’s Open Interest Changes:  

Crude 1,357,426   up 12,030       Heat 328,460  up 5,918       RBOB 313,010  up 10,370      Nat gas 859,448  dn 4,972   

CFTC Commitments of Traders for Nymex  (Forensic analysis for the period ended Tuesday, March 9th)   

 Crude oil prices gained $1.81/bbl over the latest reporting period, and the best buying came from Managed Money, which added 13,060 new longs and covered 2,282 existing shorts.  Other Reportables added 859 new longs and covered 1,696 shorts, and that helped push prices higher.  Swap Dealers liquidated 2,059 longs and added 12,031 shorts, and Producers added 20,407 new longs but also added 27,587 new shorts.  The investment funds were pushing crude oil higher, and some speculative funds and commission house customers were also buying, probably on technicals.  Swap Dealers were hedging into the strength.

    In heating oil futures, prices gained 3.37 cents a gallon, and the best net buying came from Managed Money accounts, which added 2,895 new longs and covered 2,793 shorts.  Other Reportables were he best net sellers, liquidating 708 existing longs and adding 4,017 new shorts.  Swap Dealers liquidated 1,939 longs and added 416 new shorts.  Producers added 16,278 new longs and 17,484 new shorts.  Their buying helped, but Managed Money buying and short-covering lifted prices higher on the week.

    Gasoline prices gained 6.37 cents a gallon during the period under review.  Managed Money accounts were buying, adding 3,035 new longs and 1,359 new shorts.  Swap Dealers and Other Reportables were taking profits on higher prices, liquidating 719 and 725 longs and adding 209 and 423 new shorts, respectively.  Producers added 16,430 new longs but added 18,322 new shorts, effectively balancing out with some selling.  Fund buying was the motive factor behind higher prices, here, as well.

    In natural gas, prices dropped 19.2 cents during the period under review.  All categories were both buying and selling new contracts.  Managed Money accounts sold 9,032 new contracts but bought just 5,055 new longs.  Swap Dealers added 3,253 new longs but only 188 new shorts.  Producers were fairly well balanced, adding 6,014 new longs and adding 6,857 new shorts, and Other Reportables added 869 new longs and 794 new shorts.  These numbers show Swap Dealers effectively buying the extra contracts sold by the funds (Managed Money), which were once again pounding quotes lower. 

Natural Gas & Utility Generation

Natural gas prices lost yet another 4.4 cents per million Btu yesterday, as the slow bleeding in this market continued.  And, while the trend is clearly lower and there is equally as clearly no supply shortage, we still feel that prices are artificially low here, and that bearish factors have been discounted more than a few times while this market’s positive developments have been ignored.  We specifically find it indefensible for prices to be lower than they were at the start of heating season, when the surpluses were 379 bcf and 11.11% higher than a year ago and 414 bcf and 12.27% above the five-year average.  There should be some recognition of the elimination of those surpluses.

We would agree that natural gas production remains impressively high, although we do not get the sense that the market’s pipeline has yet delivered against the period of reduced drilling seen a year to a year-and-a-half ago, yet.  We cannot say that a period of reduced output is coming, but we just do not seem to have seen anything like that, yet.  And, we do know that there was a period of reduced rig counts.  One of the most difficult aspects of this current market is trying to line up existing output with a period of drilling activity in the past.  Since there can be a long lead-time, it is possible that today’s output is still being affected by prices seen two years ago.  In any event, we have not seen any period of lower production even though we know there should be one snaking its way through the system.  At the same time, prices have been below $5.00/mmBtu for an extended period, now, and we should be seeing some kind of stimulus on demand.  The market has not looked at these.

Temperatures are forecast to be warmer than normal from today through almost the end of March.  That is unusual because we seem to have had a steady stream of cold March’s over recent years.  And another two weeks or so of warmer weather would suggest the colder trend has ended.  Still, we seem to have discounted the bearish factors more than a few times over.  Some recognition of the positive factors could occur if fund selling relaxed.

In cash trading yesterday, Henry Hub prices were at $4.18-$4.29, down $0.11-$0.13 on the day (DJN).  SoCal prices were at $4.43-$4.52, down $0.10-$0.11 on the day.  El Paso Permian prices were down $0.05-$0.15 at $4.23-$4.40.  Katy prices were down $0.07-$0.08 to $4.24-$4.35.  Waha prices were down $0.09-$0.10 at $4.24-$4.35.  Transco 6 was down $0.10-$0.16 to $4.57-$4.60/mmBtu, according to Dow Jones News (DJN).  Estimates for this week’s EIA report range from draws of 28 to 35 bcf.  Last year, there was a draw of 42 bcf and the five-year average was a draw of 65 bcf.

Palo Verde prices were last quoted at $42.25-$46.00/mwh.  Northeastern prices last traded at $31.00-$40.25.  Cinergy was last at $33.50-$34.00.  Ercot was last at $36.25-$37.00/mwh.

Support is at $4.28-$4.30, $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 $4.36-$4.37, $4.44-$4.47, $4.59-$4.63, $4.76-$4.79, $4.86-$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              :     $4.28-$4.30, $4.15-$4.17, $4.05-$4.08, $3.73-$3.75, $3.66-$3.68, $3.50-$3.53.

                                                    Resistance:     $4.36-$4.37, $4.44-$4.47, $4.59-$4.63, $4.76-$4.79, $4.86-$4.89, $4.97-$5.00.

Natural gas prices were lower again, but momentum lower is drying up and daily ranges are contracting.

Dollars per million Btu

The crude to gas ratio finished yesterday at 19.27-to-one, its highest level since September 22nd, 2009.

Ratio

EIA Weekly Storage Figures

Last week’s EIA report showed a draw of 111 bcf on expectations for a draw of 112-113 bcf.  Stocks are now 71 bcf lower than a year ago, against a deficit of 71 bcf a week ago, a deficit of 56 bcf two weeks ago and a surplus of 26 bcf three weeks ago.  Stocks are now 4.18% lower than a year ago.  They are 19 bcf and 1.18% above the five-year average.

For this week, the eight-year average (of similar Friday reports) was a draw of 48.88 bcf.  The five-year average was a draw of 42.0 bcf.  Last year’s draw was 30 bcf.  Estimates are calling for a draw of 28-35 bcf in this week’s report.

EIA Report

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

News & Views

Despite a stronger US dollar this morning, the chart picture shows us a currency that seems to be building a top.  It avoided a breakdown yesterday, but we just cannot help believing that risk-appetite is insatiable – as a default mode.

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 broke down below important support, but it now seems that we need to lower this particular support line.  took If the dollar decisively breaks down below 72 euro cents, then we will have a major top in place, which would suggest lower US currency values and higher oil prices.

   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: One-Year Chart

The DJIA ended with a gain of 47.69 points yesterday, as investors continued to be attracted like moths to riskier assets.  The DJIA managed to print new 17-month highs yesterday.

Source:  http://bigcharts.marketwatch.com/quickchart/quickchart.asp?symb=DJIA&sid=1643

A Look at Gasoline Supply & Demand

Thirteen week gasoline demand came in at 8.808 million bpd, down 1.07% against a year ago.  Thirteen-week average supply was down 2.86% to 9.590 million bpd and 13-week implied demand was 9.544 mln bpd, down 2.06%.

A Look at Distillate Supply & Demand

Thirteen week distillate demand came in at 3.722 million bpd, down 7.98% against a year ago.  Thirteen-week average supply was down 11.31% to 4.018 million bpd and 13-week implied demand was 4.169 mln bpd, down 5.25%.

A Look at Refinery Utilization

Utilization is 1.50% lower than a year ago and 6.41% below the eight-year average.  It is 8.70% lower than the four-year, pre-Katrina average and 4.12% below the average of the four years since the big hurricanes (Katrina & Rita) in 2005.

Recommendations for Specific Market Segments