Market Review for Monday
Oil prices opened lower on Monday, and they ultimately ended well lower on Monday, as traders continued to sell oil. Equities started the day lower, as well, as selling from Friday held over. But, while oil could not raise itself, equities were able to advance from their early lows to finish the day with gains. The stock market proved, as it has before, that lawsuits and courts are no match for profits, and Monday’s gains in equities came as the result of very strong (better than expected) first quarter profits from Citigroup. After testing levels beneath 11,000 early on Monday, the DJIA finished the day at 11,092.05, up 73.39 points. That took away one source of selling in oil, but it could not negate the other one, which came from
| Fuel for Thought The index of leading indicators in the US increased by the most that has been seen over the last 10 months. The index increased by 1.4% in March, and the February increase was revised to up 0.4%. Manufacturers appear to be increasing output, and workers at factories seem to be working longer hours. These improvements reflect the need to rebuild inventories, which are lean, and to meet overseas demand, which has been bolstered by a weaker US dollar over the last few years. Economists were encouraged by the numbers, which support theories that the economy is ready to enter a stronger period of expansion. The fact that factory workers are putting in longer hours suggests a source of job creation, as well, which has been the slowest part of the economy to receive any benefit. Seven out of ten indicators contributed to the rise in the index. |
ongoing Icelandic volcano-related grounding of trans-Atlantic air travel. While jet fuel is hardly one of the glamour products processed from crude oil, it does account for 7.37% of the refined barrel. That is enough to make a difference in this market.
The US dollar also had a topsy-turvy day yesterday, in sympathy with equities. The dollar started the day looking strong, printing what later became the day’s highs. By the final bell, though, the greenback had declined to the day’s lows.
The fact that oil prices could not get off the mat, while equities and currencies could, was a potentially bearish sign. The fact that precious metals were mixed on the day only confuses the issue more. By the end of the day, wire services were talking about the probability of similar charges {as those lodged against Goldman Sachs on Friday} in their oil stories. At the very same time, though, equities observers were talking about the ability of strong quarterly profits to eclipse legal problems.
The Icelandic eruption has dumped millions of tons of volcanic ash across Europe, and it has grounded airplanes since Thursday. Dow Jones estimates that flight restrictions have cut global jet fuel consumption by 1 million barrels a day, which is substantial. This is clearly bearish, but we have our doubts about the duration of this problem. In addition, it is jet fuel, which is a market that has a very limited ability to affect the “glamour” products – diesel (and heating oil) and gasoline.
The market’s determination on Monday to follow a fundamental factor – in the midst of major intraday turns in equities and currencies – underlines the importance of this week’s API and DOE reports. Prices have followed fundamental factors more in the last nine or ten days than they had over the course of weeks or months before this. It is interesting that the Goldman event is still seen as casting a bearish shadow over oil, while its specter has dissipated over other markets, at least in Monday’s trading. But, no matter which way one cuts it, Monday was a bearish day for oil.
Around 5:30 PM last night, CNBC announced that there could be another volcanic eruption in Iceland, which would add to the bearish load this market is carrying.
Cash Prices for 4/19/10 @ 3:30pm
| PRODUCT | LOOKUP | Low | High | Midpoint |
| NY Harbor: Spot Product Differentials vs. NYMEX #2 and Unl | No. 2 Heating Oil | ($0.03) | ($0.02) | ($0.03) |
| NY Harbor: Spot Product Differentials vs. NYMEX #2 and Unl | No. 2 Diesel | $0.01 | $0.02 | $0.02 |
| NY Harbor: Spot Product Differentials vs. NYMEX #2 and Unl | Ultra LS Diesel | $0.05 | $0.06 | $0.06 |
| NY Harbor: Spot Product Differentials vs. NYMEX #2 and Unl | Jet 54 | $0.03 | $0.03 | $0.03 |
| NY Harbor: Spot Product Differentials vs. NYMEX #2 and Unl | Unleaded Reg | ($0.12) | ($0.12) | ($0.12) |
| NY Harbor: Spot Product Differentials vs. NYMEX #2 and Unl | Unleaded Prem | $0.04 | $0.05 | $0.04 |
Technical Analysis
Crude Oil:
Crude oil prices were lower yesterday, and they broke and settled below $82.50. That is a bearish sign and it sets up a potential test of the next major support level at $78.55. A breakdown, with settlement price, below that would be more bearish. As it is, though, prices are likely to want at least to test the next support level.
It is amazing how quickly this market can go from looking bullish to looking bearish (or back again). This market now looks like it can be testing lower support levels.
Buy-stops are over $83.00, $85.45, $86.40, $87.10, $89.82, $90.99, $93.02, $96.03, and $100.37. Sell-stops are under $80.00-$80.15, $79.40, $78.85, $78.55, $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. Any objectives higher have been negated or suspended, for now.
Football: The bears gained 18 on first down, giving them another first down, today.
May crude oil
Support: $80.50-$80.55, $80.00-$80.15, $79.40-$79.55, $78.55-$78.65, $78.00-$78.10.
Resistance: $82.90-$83.00, $85.35-$85.45, $86.25-$86.40, $86.90-$87.10, $87.35-$87.50.
Heating Oil:
Heating oil prices were lower again yesterday, and they broke and settled below the major support at 218.70. This now leaves support at 207.65 and major support at 202.50. As with crude oil prices, we have to expect prices to try to test these lower levels, although it strikes us as being premature to suggest that the whole bullish trend has now been turned on its head. Prices would need to break and finish below 200.55 to be able to start talking about an end to the bullish trend. That was the low seen on March 1st, so to break below that figure would negate the uptrend for the March-to-May seasonal movement. We may never get there on this
May heating oil has buy-stops are now over 221.70, 225.030, 225.95-226.00, 226.90, 228.25, 229.08, 234.25, 238.95, 249.62, and 251.50. Sell stops are under 214.00, 212.65, 212.00, 210.90, 207.65, 204.95, 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.
May heating oil
Support: 214.00-214.15, 212.65-212.75, 212.00-212.10, 210.90-211.10, 207.65-207.80.
Resistance: 221.55-221.70, 225.20-225.30, 225.95-226.20, 226.90-227.05, 228.10-228.25.
Heating oil prices may now be looking to test support at 207.65 and 202.50. A break and settlement below 200.55 would take back all the gains since March 1st.
Unleaded Gasoline:
Gasoline prices broke and finished below the support at 226.35-226.45 yesterday, and that now leaves 218.95 as major support. A settlement price below that level would be additionally bearish and would leave the support at 213.70 as the market’s next best hope. That was the low on March 1st, and a close below that level would negate the seasonal move higher since that time. As a result, the bulls seem to have a lot on the line, here. The character of the next rally could end up telling us about this market’s real intentions.
May RBOB has buy-stops over 227.75 232.50, 235.20, 235.90, 240.10, 250.40, 252.00, 265.10, 267.85, and 270.85. Sell-stops are under 222.00, 221.40, 218.95, 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. Technically, a good deal of damage has been done in this market.
Rbob
Support: 224.60-224.75, 222.00-222.15, 221.40-221.55, 218.95-219.10, 215.50-215.65.
Resistance 227.60-227.75, 232.40-232.50, 235.10-235.20, 235.60-235.90, 236.65-236.75.
Oil Inventory Reports
This week’s DOE report has traditionally been the one that has brought us back from winter or first quarter maintenance programs, on balance. Of course, this has not happened every year. But, in five of the last nine years, this week has had a substantial increase in refinery utilization rates (2.0% or more). We have also typically increased crude oil imports this week, in anticipation of higher run rates to follow. This year, both of those processes have already started, so there is a chance that this week will be less significant, in comparison. There is, of course, the other possibility, that this week will increase both crude imports and refinery utilization to even higher levels.
DOE History
Distillate stocks have risen in four of the last nine years, by an average of 1.200 mln bbls. The nine-year average is a build of 0.267 mln bbls. Gasoline stocks have fallen in six of the last nine years, for a six-year average draw of 1.768 mln bbls. The nine-year average was a draw of 0.789 mln bbls. Crude oil stocks have been higher in six of the last nine years for a six-year average build of 3.183 mln bbls and a nine-year average build of 1.744 mln bbls. Utilization has been higher in six of the last nine years and has a nine-year average increase of 1.4%, with a nine-year average utilization figure of 90.47%. The five-year, pre-hurricane utilization average was 93.84%. Since Katrina, refineries have run at an average utilization rate of 86.25%. Crude oil imports have averaged 9.865 million bpd over the last six years, with an average increase 264,000 bpd seen this week. This week has traditionally started the return to higher crude oil imports and refinery utilization rates.
Last Week’s Inventory Comparison
Distillate stocks are now 2.0 million bbls, or 1.38%, higher than a year ago. Heating oil inventories are 5.1 mln bbls, or 13.53%, higher than they were a year ago. Gasoline stocks are 5.7 mln bbls (up 2.64%) higher against a year ago. Crude oil stocks are now 13.0 million bbls, or 3.54%, lower than a year ago. Residual stocks are 4.6 mln bbls (12.11%) higher than a year ago, jet fuel stocks are 0.3 mln bbls, (0.72%) higher than a year ago. Utilization is 5.19% higher than a year ago and 3.69% below the nine-year average. It is 7.43% lower than the five-year, pre-Katrina average and 0.99% above 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 19.069 million bpd, up 0.045 mln bbls on the week, and up 0.454 mln bpd and 2.44% against a year ago, reportedly. Nine weeks ago, it was 0.159 mln bpd and 0.83% lower than a year ago. Four-week gasoline demand is at 9.137 mln bpd, up 2.78%, compared to up 1.68% one week ago. It was up 119,000 bpd on the week. Four-week distillate demand is now at 3.669 mln bpd, up 0.41%, compared to down 9.08% ten weeks ago. Four-week jet demand is now at 1.405 mln bpd, down 2.16% against a year ago, compared to up 8.17% 14 weeks ago. Four-week residual fuel demand is at 0.544 mln bpd, down 12.96%, compared to up 25.96% five weeks ago. Propane use is down 8.05% to 1.017 mln bpd, compared to 1.330 mln bpd (up 7.34%) three weeks ago. These numbers continued to improve, especially for total products supplied and for gasoline demand, which are the two most widely watched numbers coming out of this set of figures.
Last Week’s API Report
This week’s API report showed a build of 1.405 mln bbls in crude oil stocks, a build of 1.714 mln bbls in distillate stocks and an unexpected build of 1.610 mln bbls in gasoline inventories. Utilization was up 0.1% to 84.8%. Implied demand came in at a mild 9.104 mln bpd in gasoline and at 3.995 mln bpd in distillate. Crude oil imports were down 730,000 bpd to 9.210 mln bpd. This week’s report was bearish, because it showed builds across the board, and the builds that were expected in crude oil and distillate stocks were larger than had been expected. On the bullish side, crude imports dropped and this week’s increase in utilization was much smaller than the last two reported increases.
DOE Inventory Statistics
| Category | Final DOE Estimate
This Week’s Report | History
Last Year’s Report | Most Recent Changes
This Week’s DOE Report | Versus A Year Ago
Millions of Barrels |
| Distillate | up 0.50 to 1.00 mln bbls | dn 1.200 | up 1.107 mln bbls | up 2.000 |
| Gasoline | dn 1.25 to 1.75 | dn 0.900 | dn 1.036 | up 5.700 |
| Crude oil | up 1.50 to 2.50 | up 5.600 | dn 2.202 | dn 13.000 |
| Utilization | up 0.5% to 1.0% | up 1.4% at 80.4% | up 1.10% at 85.59% | |
| Crude Imports | up 0.000 to 0.500 mmbd | up 0.059 to 9.391 | dn 0.681 to 8.880 mln bpd | |
| DOE Distillate Demand | 3.583 mln bpd | dn 054,000 | Gasoline Demand | 9.325 mln bpd | up 249,000 |
| DOE Distillate Production | 3.962 mln bpd | dn 080,000 | Gasoline Production | 9.248 mln bpd | up 156,000 |
| DOE Distillate Imports | 0.184 mln bpd | up 031,000 | Gasoline Imports | 0.571 mln bpd | dn 185,000 |
Open Interest Analysis
Crude oil open interest fell by 7,497 contracts on Friday, when prices were lower. That looks like long liquidation, which would be theoretically supportive. This was the first drop in open interest in nine sessions.
Heating oil open interest grew by 2,551 contracts on Friday, when prices were lower. That looks like new selling and would be bearish.
RBOB open interest fell by 3,597 contracts on Friday, when prices were lower, which looks like long liquidation and would be supportive. Since March 1st , open interest is up 67,153 contracts.
Natural gas open interest grew by 10,785 on Friday, when prices were higher. That looks like heavy new buying, which would be supportive. We have seen open interest higher on both advances and declines.
Friday’s Open Interest Changes:
Crude 1,380,408 dn 7,497 Heat 305,069 up 2,551 RBOB 329,380 dn 3,597 Nat gas 880,913 up 10,785
CFTC Commitments of Traders for Nymex (Forensic analysis for the period ended Tuesday, April 13th)
Crude oil prices rallied $0.96/bbl over the latest reporting period, and the best buying came from Producers, which added 54,173 new longs and 49,797 new shorts. Swap Dealers liquidated 901 longs and added 3,487 new shorts. Managed Money accounts liquidated 11,962 longs and covered 734 shorts. Other Reportables added 576 new longs and 4,122 new shorts. Producers ended up buying more than they sold, but the other three categories liquidated or sold more than they bought or covered. And all three of those – Managed Money, Other Reportables and Swap Dealers were net sellers by substantial amounts. The numbers do not seem to add up, either, with about 10,000 or 11,000 “extra” on the short side of the ledger, presumably with the long side having been taken by smaller non-reportable traders. Still, it is interesting that so many traders, in this report, seem to have gone against their basic, existing positions. In three out of four categories, traders went against their own net positions.
In heating oil futures, prices gained 2.44 cents a gallon and the best buying seems to have come from Other Reportables, which bought 1,047 longs and sold 911 short. Producers also covered more (14,704) than they liquidated (13,750). Swap Dealers liquidated 3,124 longs and covered 126 shorts, while Managed Money liquidated 643 longs and covered 289 shorts. Commission house buying pushed prices higher.
Gasoline prices rose 3.36 cents a gallon during the period under review. Here, it was Swap Dealers buying, adding 2,672 longs and covering 207 shorts. Producers added 3,963 longs and 5,590 shorts. Managed Money liquidated 1,591 longs and added 744 shorts. Without Swap Dealer buying, gasoline prices would not have been higher in the latest week.
In natural gas, prices rallied 14.1 cents during the period under review. Managed Money and commission houses were selling and Producers and Swap Dealers were buying. Managed Money accounts liquidated 427 longs and covered 5,143 new shorts. Other Reportables liquidated 5,355 longs and covered 1,205 shorts. Swap Dealers added 7,828 longs and added 726 shorts. Producers liquidated 5,248 longs and covered 8,575 shorts. The buying came from Swap Dealers and Producers covering shorts, while the selling as prices rose came from Managed Money and from Other Reportables (largely commission houses).
Natural Gas & Utility Generation
Natural gas prices were lower yesterday as traders returned to the fundamentals. These include high current production, ample inventories, lagging industrial demand, a lack of weather-induced space-heating or cooling demand and a growing rig count, despite lower prices. Add to this a frighteningly large increase in storage in the US Gulf and one sees a picture that is almost devoid of readily apparent bullish factors.
Traders were reportedly selling natural gas contracts yesterday in sympathy with lower oil prices, although this may be one of the factors that is actually misguided. For the last three years or so, now, some large accounts have seemingly been selling natural gas against long holdings in crude oil or heating oil. On Friday, it looked like some of these spread positions were being removed, with oil prices lower and natural gas prices higher. Clearly, what is good for oil demand should also be good for natural gas demand, but there has been the most amazing disconnect between the two over the last year and more.
After clawing its way back to almost par with year-ago and five-year average levels, storage has quickly rebuilt surpluses, especially against the five-year average. Current storage is now 16.3% higher than the five-year average. The most bullish factor in this market, until about two weeks ago, was the fact that traders had failed to discount the decline in these surpluses – at all – through the winter. Now, it is looking increasingly as if that might have been a sensible course of action. It will not take long, at the current pace, for the surpluses to return to some very high levels. Traders have been watching the rig count, already up 28% this year, according to Dow Jones, with foreboding.
Conclusions
As long as prices are able to hold above $3.81, there is a chance that this market has just corrected the advance from $2.409 to $6.108. It is close. But, a decisive break below $3.81 would be seen as a bearish development and it would be hard to prevent prices from sinking even lower in the face of both fundamental and technical selling pressures. If we were to see a decline and settlement under $3.81, it would be difficult to continue to expect traders to discount some of the bullish factors that have been ignored over the last several months.
Cash
In cash trading yesterday, Henry Hub prices were at $4.00-$4.04, up $0.01-$0.07 on the day (DJN). SoCal prices were at $3.95-$4.02, up $0.08-$0.08 on the day. El Paso Permian prices were up $0.06-$0.06/mmBtu to $3.83-$3.88. Katy prices were down $0.01 and up $0.04 to $3.88-$4.00. Waha prices were down $0.14 and up $0.06 at $3.71-$3.96. Transco 6 was up $0.02-$0.04 at $4.33-$4.37/mmBtu, according to Dow Jones News (DJN).
Electricity
Palo Verde prices were last quoted at $34.00-$36.50/mwh. Northeastern prices last traded at $37.00-$42.50. Cinergy was last at $33.50-$37.00. Ercot was last at $35.25-$35.45/mwh.
Technical Analysis
Support is at $3.90-$3.91, $3.81-$3.86, $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 $4.09-$4.10, $4.17-$4.18, $4.27-$4.29, $4.34-$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.
MAY Natural Gas:
Support: $3.96-$3.97, $3.90-$3.91, $3.81-$3.86, $3.73-$3.75, $3.66-$3.68, $3.50-$3.53, $3.44-$3.46.
Resistance: $4.09-$4.10, $4.17-$4.18, $4.27-$4.29, $4.34-$4.37, $4.44-$4.47, $4.59-$4.63, $4.76-$4.79.
As long as prices remain above $3.81, there is hope for the upside. A decisive break would be bearish.
EIA Weekly Storage Figures
This week’s EIA report showed a build of 87 bcf on expectations for a build of 77-81 bcf. Stocks are now 64 bcf higher than a year ago, against a deficit of 02 bcf a week ago, a deficit of 16 bcf two weeks ago and a deficit of 28 bcf three weeks ago. Stocks are now 3.78% higher than a year ago. They are 246 bcf and 16.29% above the five-year average.
For this week, the nine-year average (of similar Friday reports) was a build of 12.67 bcf. The five-year average was a build of 18.6 bcf. Last year, there was a build of 21 bcf. Over the last nine years, six years showed builds and three years showed draws. The previous record injection for last week was 57 bcf in 2006, putting the 87 bcf build we saw last week in perspective. The build of 38 bcf in the US Gulf of 38 bcf was an all-time record, not just for the week.
EIA Report
| Region | 04-09-10 | 04-02-10 | Change | Last Year | 5 Yr Avg |
| Cons East | 795 | 750 | up 45 | 650 | 669 |
| Cons West | 296 | 292 | up 04 | 287 | 231 |
| Producing | 665 | 627 | up 38 | 754 | 610 |
| Total US | 1756 | 1669 | up 87 | 1692 | 1510 |
News & Views
In trading on Globex, May crude oil prices were 
up $1.07 to $82.52, at 7:30 AM EDT this morning. May heating oil prices were up 2.95 cents to 2.1863/gallon. Gasoline prices were up 1.70 cents to 2.2714/gallon. May natural gas was up 0.017 to $3.961/mmBtu.
In trading this morning, oil prices have rebounded, as global investors and traders have started to digest the impact of the Goldman lawsuit. As a percentage of the business done by the firm, any civil penalties are likely to be extremely minor. This event will almost certainly add fuel to the fire in the government’s case for regulation of markets, but there is little out there suggesting that this lawsuit is going to change the way investment banks do business. The biggest element it adds in uncertainty, because other firms may be guilty of similar practices. Nonetheless, the impact of other lawsuits that have not been filed in negligible.
Traders were also taking a fresh look at the Icelandic volcano, as 9,000 out of an estimated 28,000 grounded flights were given permission to return to the skies. There is continuing concern about the ongoing venting of ash, but the situation appears to be stabilizing, for now, at least.
As we move through today’s trading, the focus is likely to shift to this week’s inventory statistics. The API report will be released @ 4:30 PM this afternoon, and the DOE report will be out tomorrow morning. We expect traders to focus more intently on these figures than they may have in previous weeks, when equities and currencies provided the main source of market inspiration.
An Illustrated Look at Energy Market Factors
Dollar Index
Dollar Index
The US dollar rallied overnight on Sunday into Monday morning, and it was strong early Monday morning. As the day wore on, though, the euro fought its way back and the dollar came under selling pressure from profit-taking. It finished near the day’s lows, as a result.
Dow Jones Industrial Average
The DJIA ended Monday’s session with a gain of 73.39 points to finish at 11,092.05. Equities were bolstered by a strong quarterly profit report from Citigroup, and they seemed to have digested the Goldman news. Equities were higher in Asia this morning, as well.
Recommendations for Specific Market Segments
Heating Oil Distributors
Heating oil prices were lower again yesterday, but they have rebounded this morning and that makes the next few days important. Over the last two weeks, traders have started to pay more attention, again, to the fundamentals. If that trend continues, it will make this week’s numbers a significant input for this market’s movement.
Distillate stocks are plentiful and there is little reason to expect to see them drop in this week’s numbers, given recent increases in refinery utilization rates. The bulls are more likely to get positive news, if there is any to be had, from demand figures, which have been improving gradually over the last few weeks.
We want to hold existing long-bias positions, but are not adding to them today.
Diesel Users
We would hold our caps and calls here, but we are not keen to add until we get a better sense of what it all means.
NYH Ultra Low Sulfur Diesel.…221.70-221.95plus 6.125
USG Ultra Low Sulfur Diesel.…218.50-218.95 plus 3.000
Jet / Kerosene & Airlines
New York Harbor cash market differentials were 2.25 to 2.50 cents over January heating oil in NY Harbor and 1.00 to 0.50 under the screen in the US Gulf. Demand for a mln bpd has been lost because of the volcanic eruption in Iceland.
Diesel & Gasoline Makers
We would stay hedged here.
Gasoline Blenders & End Users
Prices had a weak finish last week, and it is not clear where we may be headed next. We would hold our long-bias positions, for now.
Prompt NYH Fuel Ethanol…..160.00-162.00
Prompt USG Fuel Ethanol.….153.00-155.00
Quotes from 04-19-10
Heating Oil End Users
We would hold our long-bias positions here, for now. We need to see the reaction to this week’s DOE statistics.
Speculators
We are long call options, and would hold them here without adding or deleting.
Refiners
The 7:5+2 crack spread was $12.06 yesterday.
Crude Oil Producers Opec Basket…..$82.86 dn $0.42
Crude oil prices fell again yesterday, but they have rallied in trading overnight. The next few days will tell us more about this market’s intentions.