As we have been warning the market continues to be susceptible to bouts of short covering. Tuesday was just one of those days as very light buying continues overnight. Tuesday’s rally was primarily driven by a weak performance of the dollar. However, the dollar has reversed itself overnight and has now regained a good portion of what it lost on Tuesday. If the dollar continues to strengthen today oil will have a difficult time in remaining firm unless today’s EIA & API oil inventory reports are bullish.
The market is expecting a mixed report as show by the projection for EIA’s short term fundamental report. Crude and distillate are expected to show modest builds while gasoline is expected to show another large decline. Refined products inventories have been underperforming as a result of the US refining sector’s strategy to keep runs at below normal levels (for this time of the year) as a result of persistent poor refinery margins.
Projections
8/20/08
Current
Change from
Change from
Projections
Last Year
5 Year
mmbls
vs. Proj.
vs Proj.
Crude Oil
0.9
(39.7)
(14.7)
Gasoline
(3.0)
3.6
(0.1)
Distillate
0.3
2.9
3.0
Ref. Runs%
-0.1%
-5.8%
-7.8%
Change Level
85.8%
91.6%
93.6%
As has been the case for several months all eyes will once again focus on the demand side of the EIA report today. Demand has been on the defensive for most all of the oil products but the most visible and widely watched is gasoline. As shown in the seasonal chart of EIA implied demand 2008 gasoline consumption has been running below 2007 for almost all of 2008. Since May 2008 demand has also been below 2006 and the five-year average. We are now approaching the time of the year when gasoline consumption normally starts to tail off strongly as the summer vacation season comes to an unfortunate end. We may see implied demand remain steady for another week or two but then it should track lower into early October and remain below last year and the five-year average unless we see a precipitous drop in prices and the U.S. consumer reverses back to their old consumption habits. Gasoline implied demand has been averaging about 1.4% below last year. As we have discussed several times in this report the future buying pattern of the consumer will be directly related to the level that prices ultimately stabilize. We are currently on the downswing in prices with the U.S. national average retail prices down about $0.40 per gallon from its peak in mid-July. Barring any unforeseen bullish events over the next several weeks we can expect retail prices to decline another $0.30 to $0.40 as retail catches up with the decline already seen at the Nymex wholesale level.
Today is likely to be all about the short term fundamental snapshots to be released at 10:35 Am EST. A close second will be the direction of the U.S. dollar. Ongoing strength in the dollar will put downside pressure on energy prices. Our recommendations remain the same with a very big caution flag raised as the market is very susceptible to sudden reversals and bouts of short covering at any time.
Currently prices are firm across the board even as the dollar continues to move higher.
Current Expected Trading Range
Expected Trading Range
8/20/08
Change
Low
High End
From
End Support
Resistance
7:42 AM
Yesterday
Sep WTI
$115.32
$0.79
$110.00
$120.00
Sep HO
$3.1450
$0.0213
$3.0700
$3.3500
Sep RBOB
$2.8775
$0.0136
$2.8100
$3.0000
Sep NG
$8.100
$0.124
$7.530
$8.100
Euro/$
1.4698
(0.0047)
1.5290
1.5550
Yen/$
0.9101
(0.0019)
0.9200
0.9470
Dominick A. Chirichella
Energy Management Institute
1324 Lexington Ave #322
New York, NY 10128
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
