Another tumultuous week in the energy complex leading to another new all time historical high. Last week was mostly driven by several Geopolitical issues as well as talk of one of OPEC’s members (Libya) cutting production due to a lack of demand for their crude oil. All of this trumped a surprisingly bearish inventory report that saw an unexpected build in crude oil and a continuing deterioration of demand in the U.S. The war of the bulls and bears continues with the bulls wining out as they have been for many months. Each time the market experiences a modest downside correction it is quickly met with fresh buying making each downside correction shallow and short lived.
Last week we also saw the non-commercials (speculative community) switching gears and adding to their net long positions after a reducing of their net longs that has lasted for well over a month. The new net longs also resulted in another strong push in the EMI composite price of a little over $4 per barrel as shown in the following chart. With oil by far still the best investment in town money flows into energy from everywhere, especially from the equities market which is at its lowest level this year will likely continue. As we have been indicating the bulls are not ready to throw in the towel on this amazing rally that has seen prices increase by almost 50% so far this year.
A few news snippets floating around the wires over the weekend are sure to fuel the rally even further:
The New Yorker magazine reported that late last year, Congressional leaders agreed to a request from President Bush to fund a major escalation of covert operations against Iran. The article published online Sunday by the magazine cites current and former military, intelligence, and congressional sources and said the operations were described in a highly classified Presidential Finding signed by Bush and are designed to destabilize the country’s religious leadership. The Sunday Telegraph reported on line on Sunday that a former head of Mossad has warned that Israel has 12 months in which to destroy Iran's nuclear program or risk coming under nuclear attack itself. He also hinted that Israel might have to act sooner if Barack Obama wins the U.S. presidential election. Shabtai Shavit, an influential adviser to the Israeli parliament's defense and foreign affairs committee said that time was running out to prevent Iran's leaders from getting the bomb.
The above coupled with jabs coming back from Iran like Iran's Revolutionary Guard, who warned that if his country is attacked, Tehran would strike back by barraging Israel with missiles over the weekend will likely energize an already emotionally charged energy market and likely push prices to yet another new all time historical high probably sooner than later in the week. Also on Thursday July 3rd the European Central Bank will be meeting to discuss their next interest rate move for the EU. Many believe they will increase interest rates. If the building consensus is correct the dollar will get another pounding late in the week when many in the US will already be on their July 4th holiday period resulting in a less liquid than normal market. If this happens it will be very bullish for oil and in conjunction with the above could be the catalyst to send prices on their way to the next threshold of $150/bbl that has been predicted by many.
What many had hoped would be a quiet week leading to the U.S. holiday is already setting up to be anything but a quiet trading week. Stay buckled up volatility will once again be above normal with prices susceptible to huge moves in either direction but most likely with an upside bias this week. The specs should continue to trade from the long side with tight trailing stops while buy side hedgers should continue to employ options type strategies with a short time horizon.
Today is expiration day for the Nymex refined products contracts (HO, RBOB, Propane). Currently energy prices are firm while the dollar is trading either side of unchanged.
Current Expected Trading Range
6/30/08
Change
Upper
Lower
From
Resistance
Support
7:16 AM
Yesterday
Aug WTI
$142.75
$2.54
$150.00
$130.00
July HO
$3.9915
$0.0849
$4.0000
$2.7100
July RBOB
$3.5595
$0.0583
$3.7500
$3.0000
Aug NG
$13.379
$0.181
$13.500
$11.000
Euro/$
1.57
(0.0012)
1.6000
1.5200
Yen/$
0.9514
0.0062
1.0450
0.9000
Dominick A. Chirichella
Energy Management Institute
dchirichella@mailaec.com
www.energyinstitution.org
The Energy Management Institute operates a fleet of daily, weekly and biweekly energy publications covering various angles of the energy market, including over a decade of natural gas and power price indexing. In addition, EMI provides higher learning for energy professionals with comprehensive, fully accredited, energy education programs from basic to advanced level. It also provides critical business information services and thought leadership in the energy segments of Oil, Gas, Power, Alternative Fuels, soft commodities and metals.
For more info visit our website (www.energyinstitution.org), email EMI at info@energyinstituion.org or call 888-871-1207
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