Prices for March 19th, 2010

Market Review for Friday & over the Weekend      

HE US dollar was strong again on Friday, and an increase in India’s interest rate helped scare away the risk appetite that had been so keen.  Investors were talking about the continuing lack of any solid plan for Greece’s debt, and that contributed to a continuing advance in the dollar, which helped press oil prices lower.  On Wednesday, it had looked like the dollar was about to start a major meltdown; by the end of the week, it had rallied dramatically and looked like it could challenge its recent highs, which might be getting ahead of itself, actually. 

The April crude oil contract expires today, and that made Thursday’s huge increase in crude oil open interest surprising.  Not only did we see it on a decline in prices, but it almost doubled the number of contracts added in March, which now stand at 129,459.  So much of the buying has come from managed money or funds that it looks strange to see such an increase in open interest on a decline.  We will not know until Friday what actually happened, and that makes us wonder.

Two possibilities enter our minds.  The first is that funds were buying into the weakness, which would be unusual.  The second is that producers were locking in selling prices in the May contracts and beyond.  The amazing part of Thursday’s increase is that it happened despite the loss of 20,218 April contracts, which were liquidated ahead of today’s contract expiration.  There were 33,338 May contracts added, with 21,563 June and 12,016 July contracts added.  The distribution of contracts could suggest producer selling.

The oil complex has been strangely susceptible – in widely varying degrees – to talk about economic recovery, and to movements in the dollar and in equities.  Last week the dollar ruled, especially on Thursday and Friday.  But, just the week before, market observers had noted how the dollar had ceased to affect oil prices, which seemed to be following every move in equities.

As we wind down March, the only real oil factor we seem to be able to rely upon is the seasonal tendency for stronger prices.  Of all the late winters we have seen, this one has been arguably the least affected by supply and demand.  Oil has become a mirror … but what it is reflecting (equities, dollar) changes …

Technicals

  Oil prices sold off again on Friday, raising questions about the ability of the complex to advance further from here, now.  Crude oil prices sold off on Thursday, in what looked like a corrective move.  But, Friday’s decline casts a negative new light on this market.  If prices do not resume their advance immediately, we may have a much larger correction coming.  That makes today’s activity important.

Dollars per barrel

Above:  Crude oil prices have been having too much trouble with resistance up to $83.18 to feel comfortable here.

May crude oil now has buy-stops over $82.50, $83.18, $83.95, $84.83, $85.13, $89.82, $90.99, $93.02, $96.03, and $100.37.  Sell-stops are under $79.85, $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 211.60, 214.42, 217.55, 222.72, 225.80, 227.05, 229.08, 238.95, 249.62, and 251.50. Sell stops are under 205.00, 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 230.40, 231.50, 240.10, 250.40, 252.00, 265.10, 267.85, and 270.85.  Sell-stops are under 223.50, 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 gained 15 yards on Friday on fourth and 34 to go.  The bulls get the ball just as they look most vulnerable.

Technical Support & Resistance

May crude oil                       Support:             $79.85-$80.00, $79.30-$79.50, $78.00-$78.10, $77.00-$77.20, $76.30-$76.45.

                                           Resistance:        $82.35-$82.50, $83.00-$83.18, $83.85-$83.95, $84.75-$84.85, $85.00-$85.15.

Apr heating oil      Support:             206.60-206.75, 206.00-206.20, 205.00-205.15, 204.50-204.65, 201.55-201.70.

                             Resistance:        211.45-211.60, 214.30-214.42, 217.45-217.55, 222.65-222.75, 225.65-225.80.

Apr Rbob                      Support:             225.00-225.10, 223.50-223.60, 221.70-221.90, 219.00-219.15, 215.50-215.65.

                                           Resistance:        230.25-230.40, 231.35-231.50, 239.95-240.10, 250.25-250.40, 251.80-252.00.

Oil Inventory Reports

 This week’s DOE report has shown gasoline inventory drawdowns in each of the last eight years.  Distillate stocks have dropped in seven of the last eight years.  Crude oil inventories have increased in six of the last eight years, with crude oil imports up in four of the last six years.  Utilization has dropped in four years and risen the other four years.  The declines and increases in utilization were almost the same.  At this time of year, the DOE report is supposed to be bullish for refined products and bearish for crude.  More often than not, products lead the entire complex higher. 

Last 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.

Last 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%.

Last 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 61,139 contracts on Thursday, when prices were down.  That looks like heavy, new selling, or it could have been scaled-down buying.  It is bearish on paper, although it is a huge increase two days before expiration.

      Heating oil open interest fell by 671 contracts on Thursday, when prices were lower.  That looks like long liquidation and is supportive.  Open interest has increased by 32,788 contracts since March 1st.

      RBOB open interest grew by 4,954 contracts on Thursday, when prices were lower, which looks like fresh selling.  Open interest is up 61,168 since March 1st.  Thursday’s new contracts should have been selling, but could turn out to be buying

      Natural gas open interest fell by 10,851 on Thursday, when prices were lower.  That looks like more long liquidation, which is theoretically supportive, although prices fell hard.  Open interest is up by 27,024 contracts since March 1st.    

Thursday’s Open Interest Changes:  

Crude 1,403,466   up 61,139       Heat 329,435  dn 671       RBOB 322,935  up 4,954      Nat gas 843,155  dn 10,851      

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

Crude oil prices gained $0.21/bbl over the latest reporting period, and the best buying once again came from Managed Money, which added 10,830 new longs and covered 189 existing shorts.  Other Reportables, which include commission houses, added 2,598 new longs and covered 1,212 shorts, and that helped push prices higher.  Swap Dealers liquidated 12,095 longs and added 951 shorts, while Producers added 11,035 new longs but also added 10,061 new shorts.  Funds were the best buyers, with some light commission house buying, although Producers bought a little more than they sold.  Swap Dealers were good sellers. 

    In heating oil futures, prices gained 2.45 cents a gallon, and the best net buying came again from Managed Money accounts, which added 2,166 new longs and covered 312 shorts.  Producers bought 11,132 longs against the sale of 10,474 shorts.  Other Reportables were selling into the market’s strength, liquidating 243 longs and adding 3,841 shorts.  Swap Dealers liquidated 21 longs and covered 951 shorts.  Managed Money buying and short-covering was the motive force behind higher prices.

    Gasoline prices gained 1.47 cents a gallon during the period under review.  Managed Money accounts were buying, adding 4,647 new longs and covering 1,991 shorts.  Swap Dealers added 463 new longs and covered 121 shorts.  Producers bought 10,534 new longs, but added 18,242 new shorts, selling into the market gains.  Other Reportables added 191 new longs and covered 187 shorts.  The funds’ buying pushed prices higher, with some light buying and covering by commission houses.

    In natural gas, prices dropped 16.9 cents during the period under review.  Managed Money accounts sold 15,514 new shorts against the purchase of only 1,394 new longs.  Other Reportables were the only other seller, selling 2,584 new shorts against 4,290 new longs.  Producers bought 4.165 new longs and covered 1,050 shorts, while Swap Dealers added 489 new longs and covered 6,326 existing shorts.  The big funds continued their hammering of the market by selling short aggressively; everyone else was a net buyer. 

Natural Gas & Utility Generation

Natural gas prices rallied more than eight cents on Friday, and it could curiously be partly the result of weakness in crude oil.  For the last several weeks, one or more large funds have been buying oil and selling natural gas, and we believe that a significant proportion of these positions have ended up being held as spreads.  So, with crude oil prices failing to break to fresh highs, it now looks to us as if some holders of long oil positions were liquidating late last week (even though open interest burst higher on Thursday) and it is thoroughly plausible that these same traders were covering short holdings in natural gas futures.  At Friday’s low of $4.05, traders might also have seen prices as representing real value.

The bears have been so dominantly in control of this market for all of March that longs and other potential sellers have almost certainly been forced to sell positions at the market, after probably finding limit orders incapable of delivering fills on the sales side.  As a result, there is a vacuum of sorts above the market.  If and as traders come in to buy, they may find that they need to pay progressively higher prices to get filled.  That may be getting ahead of things.  Last year, March was cold.  In fact, April was cold, as well.  So far this year, we have had one of the mildest March’s we can remember.  For a number of years, March has been a cold month.  This year, it has seemed more a part of spring than of winter.  It is possible that the cold temperature pattern that has been with us for 18 months, now, has been broken.  We are expecting some cooler readings early this week, but temperatures are then expected to return to more of what we have seen recently.

The temperature forecasts through the end of March tell us that we have seen the most bullish storage comparisons we are going to get for a while.  They are likely to get worse from here.  The question is, though, whether they have fully discounted all that already.  At Friday’s low of $4.05, we have to believe that they might have discounted every negative development we are likely to see between now and May.

In cash trading on Friday, Henry Hub prices were at $3.96-$4.08, down $0.15-$0.22 on the day (DJN).  SoCal prices were at $4.00-$4.12, down $0.24-$0.26 on the day.  El Paso Permian prices were down $0.21-$0.23 at $3.87-$3.99.  Katy prices were down $0.18-$0.19 to $3.98-$4.06.  Waha prices were down $0.21-$0.21 at $3.89-$3.99.  Transco 6 was down $0.21-$0.23 to $4.24-$4.31/mmBtu, according to Dow Jones News (DJN).  

Palo Verde prices were last quoted at $37.25-$39.50/mwh.  Northeastern prices last traded at $30.75-$42.75.  Cinergy was last at $34.40-$34.75.  Ercot was last at $36.00-$37.00/mwh.

Support is at $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 $4.29-$4.30, $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              :     $4.05-$4.08, $3.73-$3.75, $3.66-$3.68, $3.50-$3.53, $3.44-$3.46, $3.28-$3.32.

                                                    Resistance:     $4.17-$4.18, $4.36-$4.37, $4.44-$4.47, $4.59-$4.63, $4.76-$4.79, $4.86-$4.89.

Natural gas prices rallied on Friday, and it now looks like a large amount of potential selling has been forced to go to the market.

Dollars per million Btu

Natural gas prices have weakened dramatically over the first quarter.

Ratio

EIA Weekly Storage Figures

Last week’s EIA report showed a draw of 11 bcf on expectations for a draw of 28-35 bcf.  Stocks are now 40 bcf lower than a year ago, against a deficit of 71 bcf a week ago, a deficit of 71 bcf two weeks ago and a deficit of 56 bcf three weeks ago.  Stocks are now 2.41% lower than a year ago.  They are 73 bcf and 4.73% above the five-year average.

For this week, the eight-year average (of similar Friday reports) was a draw of 42.12 bcf.  The five-year average was a draw of 42.0 bcf.  Last year’s build was 03 bcf.  We have had two builds this week in the last eight years.

EIA Report

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

News & Views

The bulls still have the vague connection between higher equities and economic growth on their side.  It just did not help them last week.  The dollar is nearing major resistance, and it will break out or fail.  That could determine trends nearby.

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 After coming perilously close to breaking down beneath the red-dotted line that represents major support, the US dollar has rebounded steeply in recent days, and its strength was a major factor behind the weakness seen on Thursday and Friday in oil.  Now, it looks like prices may assault major resistance, although we would hardly bet against a breakout.

   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 loss of 37.19 points on Friday, after having advanced to new recent highs for the current move.  After doing that, investors booked profits before the weekend’s start.  While this market’s new highs last week did not seem to influence oil trading, they have in the past and well may again in our near future. 

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

A Look at Jet Fuel Prices

Jet fuel prices seem to be running into overhead resistance, like the rest of the complex.

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