The energy complex experienced a modest sell-off on a combination of news that the UK refinery strike is over and the Forties crude oil field will be restarting and on the firmer U.S. dollar. The retracement still leaves the complex very over-valued. Today is a kind of triple witching day for the energy complex. This morning the EIA will release their weekly fundamental assessment at 10:30 am and this afternoon the market will hear from the Federal Reserve as to their decision on interest rates and possibly a signal as to their strategy going forward. Finally the spot refined products contracts expire on the Nymex. All of these events will impact prices today and may signal what the next few weeks have in store for energy prices.
On the inventory side the expectations are calling for a build of about 1.5 million barrels of crude, a decline of about 800,000 barrels of gasoline and a small build of about 150,000 barrels for distillate. Refinery runs are also expected to increase possibly by 1%. If the actual comes in as expected the report itself would be neutral at best since it will still show that gasoline inventories are more than 18 million barrels above last year and thus very well supplied. However the market has been ignoring anything bearish about the fundamentals and quickly discounting inventory data. We will have to wait and see as I believe the market sentiment is not as bullish as it was just a week ago.
The market sentiment may be slowly changing as a result of many participants starting to buy into the fact that this may be the last Fed interest rate cut for the foreseeable future. This has started a very overdue short covering rally for the U.S. dollar versus most major currencies and thus bearish for oil. The market will be looking for any signal from the Fed today that the aforementioned scenario is in fact beginning to emerge. If so we can look for a much stronger rally in the dollar and thus further downside pressure for the energy complex as well as the rest of the commodity complex.
Today may turn out to one of those pivotal days in the world of oil as the long awaited correction may be under way (since yesterday) and not just a one day sell-off as we have seen over the past month or so. Currently prices are mixed.
Current Expected Trading Range
4/30/08
Change
Upper
Lower
From
Resistance
Support
6:26 AM
Yesterday
June WTI
$115.42
($0.21)
$120.00
$99.20
May HO
$3.2520
$0.0055
$3.4000
$2.7100
May RBOB
$2.9253
($0.0139)
$3.1500
$2.5200
June NG
$10.813
($0.029)
$11.000
$8.700
Euro/$
1.5511
(0.0020)
1.6000
1.5200
Yen/$
0.9633
(0.0012)
1.0450
0.9900
Dominick A. Chirichella
Energy Management Institute
dchirichella@mailaec.com
www.energyinstitution.org
www.advancedenergycommerce.com
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