Prices for March 25th, 2010

Market Review for Thursday     

RICES rallied early yesterday in sympathy with stronger equities prices and a weaker US dollar.  Some of the buying, especially in the US dollar, came from profit-taking, or short-covering.  Fed Chairman Ben Bernanke repeated the Fed’s mantra about the need to keep US interest rates low “for an extended period,” and that helped pressure the dollar lower.  And, in Brussels, the European Central Bank announced some eagerly-awaited support for Greece’s debt woes by withdrawing a threat (made earlier) that it might not be willing to lend against Greek bonds as collateral. 

US investors had mixed emotions over Mr Bernanke’s continuing focus on low interest rates, at a time when many had hoped that the crux of the conversation might be shifting towards exit strategies (from low interest rates and accommodative policies).  He warned that the employment picture remains weak, and that led some investors to believe that any employment gains seen in March might turn out to be temporary, according to interviews conducted by Dow Jones.

The early strength in the dollar ended later in the session, when the ECB said that the IMF will not be needed, suggesting austerity measures will suffice.  That sent the dollar back up, and it ended the day at its highs.  Oil prices, led by gasoline, gave up the day’s gains and finished near unchanged. 

 One interesting fact, that has us worried about gasoline prices going forward, was uncovered by David Bird of Dow Jones, who wrote yesterday, “Based on levels so far in March, gasoline output is trailing demand in the month by just 62,000 b/d, or 0.7%. The 5 year average for March has output lagging demand by 826,400 b/d, or more than 9%. Output hasn’t been so closely matched with demand in March since 1977.”  He goes on to extrapolate what this could do to inventories: “The relative surge of gasoline output vs demand has pushed gasoline stocks up to 224.6 mln bbls, and on pace to end March at the highest level since 1993 and be 5.6% above the 5-year average. If the 5-year average draw of 300,000 bbls occurs between March and June, stocks of 224.3 mln bbls at the end of June would be highest since 1993 and still 5.6% above the 5-year average.”

Technicals

       Oil prices were lower again, yesterday, but they all remained inside their trading ranges.  Crude oil is in a range between Monday’s low of $78.57 and the major resistance at $83.18.  Heating oil is in a range between 202.50 and 214.42.  Gasoline prices are in a range between 220.00 and 231.50.  The next direction is still likely to be decided by which end of these ranges are broken decisively, first.  Yesterday, prices reinforced support & resistance.

Cents per gallon

Above:  Crude oil is in a range between $78.57 and $83.18.

May crude oil now has buy-stops over $81.65, $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, $79.40, $78.85, $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 209.75, 210.46, 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 205.95, 202.50, 201.55, 200.55, 199.00, 196.40, 190.75, 189.95, 187.45, 186.50, 182.63, 177.00, 176.68, and 173.75.  April RBOB has buy-stops over 225.50, 226.65, 230.40, 231.50, 240.10, 250.40, 252.00, 265.10, 267.85, and 270.85.  Sell-stops are under 221.15, 220.00, 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, and 175.14. 

Football: The bulls lost one yard yesterday on fourth and 14, and that turns the ball back over to the bears.

Technical Support & Resistance

May crude oil                       Support:             $79.85-$80.00, $79.40-$79.50, $78.85-$79.00, $78.00-$78.10, $77.00-$77.20.

                                           Resistance:        $81.55-$81.65, $82.35-$82.50, $83.00-$83.18, $83.85-$83.95, $84.75-$84.85.

Apr heating oil      Support:             205.95-206.10, 205.00-205.15, 204.50-204.65, 202.50-202.65, 201.55-201.70.

                             Resistance:        209.60-209.75, 210.35-210.46, 211.45-211.60, 214.30-214.42, 217.45-217.55.

Apr Rbob                      Support:             221.15-221.30, 220.00-220.15, 219.00-219.15, 215.50-215.65, 213.70-213.85.

                                           Resistance:        225.35-225.50, 226.50-226.65, 230.25-230.40, 231.35-231.50, 239.95-240.10.

Oil Inventory Reports

This week’s DOE report had some remarkable similarities with this week’s API report.  The DOE report showed a crude oil stock build of 7.245 million barrels, while the API had a build of 7.514 million barrels.  The DOE showed a distillate drawdown of 2.422 million barrels, while the API had a distillate draw of 2.534 million barrels.  The two had completely different figures for gasoline stocks.  This week’s crude oil stock build was the big feature in the statistics. 

This Week’s Inventory Comparison:  Distillate stocks are now 1.0 million bbls, or 0.69%, higher than a year ago.  Heating oil inventories are 4.0 mln bbls, or 10.90%, higher than they were a year ago.  Gasoline stocks are 8.4 mln bbls (up 3.89%) higher against a year ago.  Crude oil stocks are now 10.0 million bbls, or 2.77%, lower than a year ago.  Residual stocks are 0.9 mln bbls (2.30%) lower than a year ago, jet fuel stocks are 1.1 mln bbls, (2.61%) higher than a year ago.  Utilization is 0.90% lower than a year ago and 6.14% below the eight-year average.  It is 8.83% lower than the four-year, pre-Katrina average and 3.45% 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 19.360 million bpd, up 0.013 mln bbls on the week, and up 0.676 mln bpd and 3.61% against a year ago, reportedly.  Six weeks ago, it was 0.159 mln bpd and 0.83% lower than a year ago.  Four-week gasoline demand is at 8.953 mln bpd, up 1.19%, compared to down 1.26% five weeks ago.  It was up 6,000 bpd on the week.  Four-week distillate demand is now at 3.761 mln bpd, down 0.95%, compared to down 9.08% seven 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% 11 weeks ago.  Four-week residual fuel demand is at 0.643 mln bpd, up 6.41%, compared to up 25.96% two weeks ago.   Propane use is up 6.40%, to 1.405 mln bpd, compared to 1.330 mln bpd (up 7.34%) a week ago.  The major figures were similar to slightly stronger than they were a week ago. 

This Week’s API Report:  This week’s API report showed a huge build of 7.514 mln bbls in crude oil stocks, a draw of 2.534 mln bbls in distillate stocks and a small draw of only 0.081 mln bbls in gasoline inventories.  Utilization was down 0.5% to 80.8%.  Implied demand came in at a respectable 9.565 mln bpd in gasoline (after two strong weeks) and at 4.295 mln bpd in distillate.  Crude oil imports were up an eye-catching 1.272 mln bpd to 9.189 mln bpd.  Crude imports accounted for the build.

                                                                    DOE Weekly Inventory Statistics

Source: US Department of Energy’s Energy Information Administration  

Open Interest Analysis

    Crude oil open interest fell by 7,307 contracts on Wednesday, when prices dropped.  That looks like long liquidation, which would be supportive.  Open interest is up 19,971 for the month of March, so far.  At one stage, it was up 129,459.

      Heating oil open interest grew by 264 contracts on Wednesday, when prices were lower.  That looks like net, new selling and is negative.  Open interest has increased by 29,811 contracts since March 1st.

      RBOB open interest fell by 1,103 contracts on Wednesday, when prices were lower, which looks like net long liquidation, which would be supportive.  Open interest is up 61,452 contracts since March 1st – which is the biggest net gain in the group.

      Natural gas open interest fell by 4,761 on Wednesday, when prices were lower.  That looks like long liquidation, which would be supportive.  Open interest is up by 10,314 contracts since March 1st.    

Wednesday’s Open Interest Changes:  

Crude 1,291,232   dn 7,307       Heat 326,458  up 264       RBOB 323,219  dn 1,103      Nat gas 826,445  dn 4,761           

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 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 dropped below $4.00 per million Btu yesterday before this week’s EIA underground storage report was released.  It showed a build of 11 bcf, against expectations for a build of 9-11 bcf.  And it left storage amounts 28 bcf and 1.69% below a year ago, compared to 40 bcf and 2.41% below (year-ago levels) after last week’s figures.  Against the five-year average, storage levels are now 121 bcf and 8.04% higher than a year ago, compared to a surplus of 73 bcf (4.73%) a week ago.  After the report was released, traders started to get used to prices below the important $4.00 per million Btu level. 

The actual figure seen yesterday was right around expectations, but it just turned out to be too much for some traders to see.  That was even more the case with a three-dollar handle.  The last few sessions had seen traders trying to hold support above $4.00/MMbtu.  Once that price was broken, a number of longs, especially those who had been in this market for any time, were seemingly ‘forced’ into selling out their long positions.  Technically, yesterday’s breakdown below $4.00 is likely to cast long shadows over this market.

Unless prices can mount a recovery soon, one must expect that traders will continue to sell this market until they find some reason not to.  Price is apparently not going to be one of those factors, at least not near-term.  And, if a major reworking of the market surpluses could not generate some buying, we just do not know what will. 

Yesterday’s break below $4.00 was a major victory for the bears in this market, and it highlights the apparent realities of shale-gas as a source of new and ready supply.  Of course, we are now at price levels that are likely to discourage drilling activity.  Somewhere, longer-term, this decline will have to have a number of bullish ramifications, in terms of higher demand and lower output.  For now, temperature forecasts remain mostly mild, ahead.

In cash trading yesterday, Henry Hub prices were at $3.93-$4.03, down $0.06-$0.07 on the day (DJN).  SoCal prices were at $4.00-$4.16, down $0.04-$0.08 on the day.  El Paso Permian prices were down $0.03-$0.15 at $3.75-$3.97.  Katy prices were down $0.03-$0.05 to $3.90-$4.03.  Waha prices were down $0.02-$0.10 at $3.80-$3.96.  Transco 6 was up $0.06-$0.15 to $4.40-$4.57/mmBtu, according to Dow Jones News (DJN).  

Palo Verde prices were last quoted at $36.50-$40.00/mwh.  Northeastern prices last traded at $35.20-$45.75.  Cinergy was last at $34.50-$35.50.  Ercot was last at $33.25-$33.35/mwh.

Support is at $3.94-$3.95, $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 $4.14-$4.18, $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.  Heavy sell-stops are under $4.00 right now.

Apr Natural Gas:                 Support              :     $3.94-$3.95, $3.73-$3.75, $3.66-$3.68, $3.50-$3.53, $3.44-$3.46, $3.28-$3.32.

                                                   Resistance:     $4.14-$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 plunged beneath $4.00 yesterday, after trying for the last five sessions to build support.

Dollars per million Btu

The crude to gas ratio ended at 20.23 to one yesterday.  It was its highest ratio since September 17th, when it reached 20.96-to-one.

Ratio

EIA Weekly Storage Figures

This week’s EIA report showed a build of 11 bcf on expectations for a build of 9-11 bcf.  Stocks are now 28 bcf lower than a year ago, against a deficit of 40 bcf a week ago, a deficit of 71 bcf two weeks ago and a deficit of 71 bcf three weeks ago.  Stocks are now 1.69% lower than a year ago.  They are 121 bcf and 8.04% 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 37 or 42 bcf.  Last year’s build was 1 or 3 bcf.  Expectations this week were for a build of 9-11 bcf.

EIA Report

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

News & Views

If the EU has really found a workable solution to the Greek debt crisis, we would expect equities to lead the market higher – if, in fact, that is the direction prices wish to go.  When we return next week, all eyes will return to the US dollar, we feel.

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 started out moving lower yesterday and it was lower through much of yesterday’s trading.  Fresh buying, on renewed fears over a potential bailout package for Greece.  ECB President Jean-Claude Trichet said later in the day that an IMF package will not be needed and suggested austerity measures will suffice; that message sent the dollar to its highs, and helped push oil prices back near unchanged.

   http://www.x-rates.com/d/EUR/USD/graph120.html

A Look at the Dow Jones Industrial Average (djia)

Dow Jones Industrial Average: One-Year Chart

The DJIA ended with a gain of 5.06 points yesterday, but it had been up substantially more than that earlier in the day.  Selling developed around midday, and it picked up steam yesterday afternoon, giving back 100 points in the process. 

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

A Look at Inventories

Crude oil inventories seem to be climbing, again.

A Look at Imports

Thirteen-week gasoline imports are at the lower end of their historical range.

Thirteen-week distillate imports have recovered dramatically.

Thirteen week crude oil inventories are at historically low levels.

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