Last week was the first strong down week in a long time. The price surge may be ending for now as the market sentiment seems to be changing. As shown in the following table prices in the energy complex are lower across the board with crude oil leading the way lower followed closely by heating oil. Although lower, the winner for the week was RBOB gasoline which declined the least in the complex. This pattern should be of no surprise as crude oil, followed by heating oil have been leading the complex higher with gasoline lagging. Gasoline has been lagging due to the significant overhang of gasoline stocks.
On the positive side of the market, the refiner’s margin recovered a bit on the week. The gasoline crack which has been under tremendous pressure over the last few months led the way higher and exhibited the highest level of volatility as measured by the percentage change in the weekly range. We will need to see if gasoline prices hold firm relative to the rest of the complex as last week’s gasoline price activity appeared to be driven more by short covering rather than a structural change in the fundamentals of gasoline. Gasoline inventories remain over 22 million barrels above last year and at the highest level since the early ‘90s.
Trading For the Week
Current
Change
Change
14-Mar
Weekly
Range % of
Price
From Thurs
For Week
Settle
Range
Fri Close
7:29 AM
May WTI
$101.24
($0.60)
($7.50)
$108.74
$10.25
9.43%
Apr HO
$2.9750
($0.0022)
($0.1715)
$3.1465
$0.2905
9.23%
Apr RBOB
$2.6051
$0.0000
($0.0843)
$2.6894
$0.2700
10.04%
Apr NG
$9.117
$0.052
($0.751)
$9.868
$1.439
14.58%
May 08 Cracks
RBOB Crack
$8.502
$0.63
$3.47
$5.033
$6.56
130.36%
HO Crack
$20.371
$0.14
$1.43
$18.940
$1.39
7.34%
321 Crack
$12.419
$0.466
$2.80
$9.622
$4.855
50.45%
The market has changed its focus (at least for the moment) to the faltering U.S. economy and the impact it may have on demand. In addition, many players are once again looking to the energy fundamentals with all eyes looking at the most recent report that showed demand in the United States is now lower than last year at this time by a little more than 3%. This current view is changing the market sentiment to a more neutral-to-bearish bias. By all measures, the energy complex is still very over valued even after last week’s push to the downside. The U.S. dollar has gained some ground last week and is contributing to the current change in sentiment.
This will prove to be a very interesting week. If prices move lower on the week it will bring more credence to the thought that the downside market correction is solidly in place. If not, last week will then be written off as just another short term move in a very strong uptrend. We do expect volatility to continue be at above normal levels with the market assimilating all of the many potential catalysts…economy, U.S. dollar, this week’s inventories, equities markets, etc.
This is still a very difficult market to operate in and it will continue to be difficult until a clear cut pattern emerges. Currently prices are mixed in quiet overnight trading.
Current Expected Trading Range
3/24/08
Change
Upper
Lower
From
Resistance
Support
7:29 AM
Yesterday
May WTI
$101.24
($0.60)
$112.50
$99.20
Apr HO
$2.9750
($0.0022)
$3.2500
$2.7100
Apr RBOB
$2.6051
$0.0000
$2.9000
$2.5200
Apr NG
$9.117
$0.052
$10.250
$8.700
Dominick A. Chirichella
Energy Management Institute
dchirichella@mailaec.com
www.energyinstitution.org
www.advancedenergycommerce.com
