Market Review for Tuesday
The oil complex was higher in trading overnight on Monday night, into Tuesday morning, and traders were talking about air travel resuming between Europe and the US and inside continental Europe on Tuesday. Despite the partial return, the fallout of ash from the volcano has cut European jet fuel consumption by roughly two-thirds, and it has backed up deliveries scheduled by pipeline and barge. European jet demand, normally at 1.2 million bpd, is now estimated at 700,000 bpd.
| Fuel for Thought The latest SpendingPulse gasoline consumption report, released by MasterCard, showed the transportation fuel’s usage up 1.8%, with gains seen in every region, bouncing up from an eight-week low, according to Bloomberg. The latest week showed gasoline demand up 1.1% on the year, to 9.470 million bpd. Demand had reportedly declined by 3.6% the previous week, but analysts said that it had been the result of the unique placement of Easter each year. Demand over the last four weeks has averaged 9.480 million bpd, up 1.0% against a year ago. Year-to-date, consumption is reportedly up 1.4%. SpendingPulse pegged retail gasoline prices nationwide at $2.85 a gallon, up a penny on the week, but 40% higher than a year ago and the highest seen at retail since October 17, 2008. |
Nevertheless, the partial resumption of trans-Atlantic movement seemed to help prices psychologically. Investors also seemed to have gotten beyond the Goldman lawsuit, and they were buying equities again on Tuesday, on strong quarterly profits reports.
By 1 PM, the DJIA was up more than 30 points and crude oil prices were up right around $2.00 a barrel. The US dollar was higher against the euro and yen, but precious metals prices were higher. It might be too broad a statement to say that risk appetite has returned, but certain aspects of it did seem to be back in play.
More than anything else, it seemed that investors felt they had over-reacted to the Goldman event on Friday – and even more so on Monday, when there was still left-over selling. A large part of that selling was attributed to the volcano, but it was clearly predicated on Goldman, as well – or we would not have seen such a sharp rally on Tuesday. An additional 24,824 contracts were liquidated on Monday, showing that investors were still getting out of existing positions as the week started.
We expect that a fair number of these were put back on Tuesday. With the DJIA higher and the dollar lower, and with only a portion of air travel back in business in Europe, we are left with just the Goldman element – and what appears to have been a major reassessment of the impact of the lawsuit – as a likely reason for Tuesday’s steep advance.
The May crude oil contract expired yesterday, and prices ended where they had been at 1 PM. At that stage, the DJIA was up 35 points, so there was a pretty decent correlation between the two moving higher on Tuesday. That may be completely forgotten on Wednesday, when we will have the DOE report to give oil prices direction, but on Tuesday, oil prices were trading higher along with equities in a post-Goldman trading session.
This week’s API report showed a draw of 0.741 million barrels in crude oil stocks, a draw of 1.743 million barrels in gasoline and a draw of 3.103 million barrels in distillate stocks. Refinery utilization was up 0.3% to 85.1%. Crude oil imports were up 685,000 bpd to 9.895 million bpd. This was a generally bullish report, although it did show another increase in refinery use, which could lead to builds in refined products down the road.
Cash Prices for 4/20/10 @ 2:13pm
| PRODUCT | LOOKUP | Differential | Spot Value | Change |
| NY Harbor: Spot Product Differentials vs. NYMEX #2 and Unl | Unleaded Reg | ($0.11) | $2.18 | $0.04 |
| NY Harbor: Spot Product Differentials vs. NYMEX #2 and Unl | No. 2 Heating Oil | ($0.03) | $2.16 | $0.02 |
| NY Harbor: Spot Product Differentials vs. NYMEX #2 and Unl | Ultra LS Diesel | $0.05 | $2.24 | $0.03 |
| Gulf Coast: Spot Product Differentials vs. NYMEX #2 and Unl | Unleaded Reg | ($0.09) | $2.20 | $0.03 |
| Gulf Coast: Spot Product Differentials vs. NYMEX #2 and Unl | No. 2 Heating Oil | ($0.04) | $2.15 | $0.04 |
| Gulf Coast: Spot Product Differentials vs. NYMEX #2 and Unl | Ultra LS Diesel | $0.03 | $2.22 | $0.03 |
Technical Analysis
Crude Oil:
Crude oil prices settled near yesterday’s highs, and that leaves them in a strong position to continue their advance from here. There is major support at $78.55 and important resistance at $86.40 and $87.09. Yesterday’s activity did not reinstate the trend higher, but it certainly helped the bulls.
It looks like the Goldman event is over as a major market feature, and it looks like the seasonally-inspired trend might get back on track. Today’s report will be significant.
Buy-stops are over $85.65, $86.40, $87.10, $89.82, $90.99, $93.02, $96.03, and $100.37. Sell-stops are under $81.50, $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. The trend higher is in abeyance until clearly reinstated.
Football: The bears lost 20 yards on first down, making it second and 30 to go today. We are inclined to see a fumble, but that did not work for us last time around.
Jun crude oil
Support: $83.15-$83.25, $80.50-$80.55, $80.00-$80.15, $79.40-$79.55, $78.55-$78.65.
Resistance: $84.45-$84.55, $85.45-$85.65, $86.25-$86.40, $86.90-$87.10, $87.35-$87.50.
Heating Oil:
Heating oil prices turned back up yesterday, and there is now good resistance at 219.25, 221.70, 226.20 and 228.22. There is decent support at 207.65 and major support at 202.50. Heating oil prices had the least impressive technical pattern of the oil complex, with prices trading inside Monday’s trading range. “Inside days” are rarely indicative of very much and are seen as days of indecision. Often, they are included in continuation patterns, although here that would be bearish, while the patterns seen in crude oil and gasoline yesterday were constructive or bullish.
May heating oil has buy-stops are now over 219.25, 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 216.20, 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 rallied yesterday, and now have support at 207.65 and 202.50. Resistance will be at 219.25, 221.70, 226.20 and 228.22. The trend higher has not yet been negated, but it clearly needs fresh confirmation.
UnleAded Gasoline:
Gasoline prices have resistance at 235.20 and 236.72 and support below the market at 218.10 and 213.70. Yesterday, gasoline had an “outside day,” or what looks like a “key reversal.” It is at the wrong place for it to be that, but its significance could be the same as one.
The support at 213.70 is the market’s next major point on the downside. The resistance at 236.72 is its most important test on the upside. A break and settlement above hat level would be extremely bullish and would suggest an open water advance to higher levels. Technically, we are at an important junction between failure and breakout.
May RBOB has buy-stops over 230.20 232.50, 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, 218.10, 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. Yesterday’s activity was constructive and a victory for the bulls.
May Rbob
Support: 224.60-224.75, 222.00-222.15, 221.40-221.55, 218.95-219.10, 218.00-218.15.
Resistance 230.00-230.20, 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.
This Week’s API Report
This week’s API report showed a draw of 0.741 million barrels in crude oil stocks, a draw of 1.743 million barrels in gasoline and a draw of 3.103 million barrels in distillate stocks. Refinery utilization was up 0.3% to 85.1%. Crude oil imports were up 685,000 bpd to 9.895 million bpd. This week’s report showed draws across the board, in contrast to last week’s builds across the board. Gasoline demand came in at 9.525 million bpd. Distillate demand came in at an extremely robust 4.602 million bpd. Both demand figures were supportive. The only really bearish feature was the increase in refinery utilization. Another increase in utilization in today’s DOE report could compromise inventories.
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 24,824 contracts on Monday, when prices were lower. That looks like heavy, long liquidation, which would be theoretically supportive. In two days, 32,321 contracts were liquidated, after adding 104,059 in the previous eight trading days.
Heating oil open interest fell by 4,067 contracts on Monday, when prices were lower. That looks like long liquidation, which would be supportive.
RBOB open interest fell by 5,929 contracts on Monday, when prices were lower, which looks like long liquidation and would be supportive. Since March 1st , open interest is up 61,224 contracts.
Natural gas open interest grew by 13,205 on Monday, when prices were lower. That looks like heavy new selling, which would be bearish. Open interest continues to increase on moves in both directions.
Monday’s Open Interest Changes:
Crude 1,355,584 dn 24,824 Heat 301,002 dn 4,067 RBOB 323,451 dn 5,929 Nat gas 894,118 up 13,205
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 back up again (3.1 cents) on Tuesday, as traders were back in there “bargain-hunting.” It seems to have become a full seasonal event, like a really prolonged Easter egg hunt. Prices rally, and traders suddenly remember that the fundamentals are rotten. Then, they drop, and everyone dashes out with their little baskets looking for bargains. At least that might be the impression made on someone who doesn’t know much about natural gas and has read the daily reviews these last few weeks.
Without putting too fine a point on it, we would try to back this up, as gracefully as possible, into a more normal conversation of price activity. Prices seem to have found what is at least a temporary bottom. And they are moving sideways. Whenever prices get above $4.15 (and sometimes sooner), producers come in to start hedging output. Knowing this, we see fund selling at scattered figures, and generally after any decent rally. Prices sink from the higher numbers, but have received decent buying interest between $3.81 and $3.96. Fewer than 16% of the settlements since 2002 have been beneath $4.00, so traders tend to see prices beneath $4.00 as legitimate buying opportunities.
In the same way that the funds know there is trade selling at prices above $4.15, so they seem to expect trade buying beneath $4.00. As a result, we seem to see a fair amount of short-covering in our larger support zone from $3.81 and higher. The end result is a market torn between bearish fundamentals – ample amounts in storage, aggressive drilling and current production, lagging industrial demand and a very deliberate recovery – and a sense that economic recovery could increase demand, especially from historically low prices. We have seen prices consistently rally from the lower numbers, and that has become a self-perpetuating trend. So, it seems to be a little bit more than just catch-all, garden-variety bargain-hunting.
Conclusions
Any opinion one holds on any market should always be tempered by price. It is one thing to be bearish when prices are at more than $10.00. It is another to be bearish when they are beneath $4.00. The supply and demand factors in this market are bearish, but prices have discounted a good many bearish factors in their decline from $13.69 in July, 2008. And, natural gas also has value in relation to other fuels. Based on where it was and where other fuels are, gas is a bargain. That seems to be at the heart of its ability to hold above $3.81 right now.
Cash
In cash trading yesterday, Henry Hub prices were at $3.90-$3.96, down $0.08-$0.10 on the day (DJN). SoCal prices were at $3.85-$3.95, down $0.07-$0.10 on the day. El Paso Permian prices were down $0.06-$0.12/mmBtu to $3.71-$3.82. Katy prices were down $0.01-$0.07 to $3.87-$3.93. Waha prices were down $0.11 and up $0.09 at $3.80-$3.85. Transco 6 was down $0.07-$0.09 at $4.24-$4.30/mmBtu, according to Dow Jones News (DJN).
Electricity
Palo Verde prices were last quoted at $34.00-$35.00/mwh. Northeastern prices last traded at $38.75-$40.00. Cinergy was last at $35.75-$37.00. Ercot was last at $34.75-$35.00/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.
Gas prices rallied from the day’s lows ($3.879) to close just below $4.00. The support at $3.81 has held.
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, June crude oil prices were up $0.42 to $84.27, at 12:30 AM EDT this morning. May heating oil prices were up 1.06 cents to 2.1908/gallon. Gasoline prices were up 1.21 cents to 2.2930/gallon. May natural gas was down 0.006 to $3.969/mmBtu.
In trading last night, the US dollar continued moving higher, and traders continued to ignore it as a reason to sell oil futures. Canada’s central bank made it clear yesterday that it will raise interest rates at its next policy meeting in June. The US is unlikely to follow, but investors love the Canadian dollar and still seem to like the US dollar.
We have noted here recently that crude oil trading volume on the Nymex has increased substantially recently. Volume has been working higher since the start of the year, Bloomberg notes, on the Nymex and on the ICE. But volume has catapulted higher in April, with daily turnover averaging 1.27 million contracts a day, up through Friday. The previous r
ecord was set in January, with an average of 1.03 million contracts. And April’s half-month average was a stunning 41% higher than it had been in May, 2008, when the average was close to 900,000 contracts each day. The biggest concentration of trades occurred in four trading days a week after Easter (April 9th, 12th, 13th and 14th). Bloomberg believes that the surge in volume is connected to a recent widening in the contango and the impact that would have had on spreads. Others feel that a large number of traders found themselves wrong-footed by recent market moves, while still others feel its cause may be found in more recent events.
Just A Thought … . An Illustrated
After nine decades of trading off exchanges, in cash markets or through term contracts with prices set by the Texas Railroad Commission, the Seven Sisters or Opec, free and open crude oil trading started (up again) on the Nymex at the end of March, 1983. It had last traded on an exchange in lower Manhattan in 1890.
Since that memorable day in March, 27 years or roughly 6,780 trading days ago, there have been only 313 days when the front month has finished at $80 or higher. That comes to a little more than 4.6% of the entire time during which crude oil futures have traded on the Nymex. If one wants to take a more contemporary date, and throw in some symmetry, one could start on January 2nd, 2002. Why that date? We like it because all of the 313 days that traded above $80 fall after that date, while there were also 317 days in the period since then that settled below $30. We may have had four more days that settled beneath $30 than settled above $80 a barrel but, since the start of 2002, both figures have accounted for roughly 15% of the market’s closes. The other 70% fell between $30.01 and $79.99.
Opec likes prices above $80, but what commodity producer does not like the top five percentiles of its historic price range? The ministers somehow believe that prices are “fair” or “stable,” rather than an anomaly or aberration, here. But, the funny thing is that Opec actually apologized to consumers when prices broke over $30, earlier in the decade (2001-2010). When we started the decade, $30 was considered a very desirable level (by Opec) and prices traded there in relative “stability” until the Second Gulf War. Up until 2004, we had never seen prices above $41.15.
The problem, though, is this: 2002 did not start the modern period of open outcry trading in crude oil. It is just an arbitrary date we picked because our charts go back that far and we loved the symmetry between “less than $30” and “more than $80.” Each category garners 15% of the days since then. By next week, the number of days in each category will be precisely the same, we expect. But the impact that each category has on the US economy is distinct.
The difference of $50 a barrel over the course of a full year comes to a little less than $350 billion. That would be a heck of a tax cut. But, Opec has had a public relations machine do the heavy lifting for it, because few of us believe that $30 oil is possible, again. Many others of us doubt it would be good for us. One of the facts that is overlooked, though, is that drilling costs come down when energy costs decline. The majority of crudes produced each day in the world cost less than $30 a barrel to bring profitably to refineries.
For a moment, we would prefer to sidestep any discussion of potentially negative impacts, starting with the environment and covering drilling and the effects on other nations. We know that low, real oil prices have been at the heart of America’s strongest periods of sustained economic growth and prosperity over the last 40 years. And we find it increasingly difficult to find historical support for the idea of a strong US recovery with oil priced above $80.
Just a thought … .
An Illustrated Look at Energy Market Factors
Dollar Index
Dollar Index
The US dollar was stronger yesterday, but ended with just moderate gains. The big gainers were Australian and Canadian dollars, which advanced on the back of comments signaling interest rate hikes to come. The Bank of Sweden suggested that rate hikes will be enacted this summer or autumn. India actually raised its rates.
Dow Jones Industrial Average
The DJIA ended Tuesday’s session with a gain of 25.01 points to finish at 11,117.06. Equities were higher yesterday on strong quarterly profit numbers from technology and banking companies, and the uncertainty connected with the Goldman event gave way to a fresh sense that the global economy is recovering on a solid foundation.
Recommendations for Specific Market Segments
Heating Oil Distributors
Heating oil prices were up more than two cents yesterday, but this contract was the weakest of the complex. That could change quickly, as we have seen repeatedly, recently. We do not expect heating oil to be the master of its own destiny, though. Crude oil, gasoline, the dollar, equities or just a vague feeling that the economy is strengthening; any of these seems more likely to grab this market by the nose and lead it – in most cases higher.
An increase in distillate demand would be the most bullish single statistic we could see in today’s DOE figures. Further afield, and not something most observers would immediately imagine, refinery utilization could be the most potentially bearish figure out today. We will need the gasoline. But, it will not really be until next winter that we will need any substantially larger amounts of distillate.
We want to hold existing long-bias positions, but are not adding to them right away.
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.…223.00-223.75plus 5.375
USG Ultra Low Sulfur Diesel.…222.00-222.25 plus 4.125
Jet / Kerosene & Airlines
New York Harbor cash market differentials were 0.75 to 1.25 cents over January heating oil in NY Harbor and 0.00 to 0.25 over the screen in the US Gulf. The volcano has clipped demand by half a million to a million bpd. It has erased the premium in the UD Gulf.
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 $11.14 yesterday.
Crude Oil Producers Opec Basket…..$80.89 dn $1.97
Crude oil prices jumped $2.00 yesterday, which changed the “feel” of the market and may have placed the bulls back in the driver’s seat.