|
EMI QuickView Short Term Market Overview | ||||
|
Impact on Prices | ||||
|
Price Drivers |
Crude |
Gasoline |
HO/Diesel |
Nat Gas |
|
Supply |
Br |
Br |
Br |
Br |
|
Demand |
Br |
Br |
Br |
Br |
|
Inventories |
Br |
Br |
Br |
Br |
|
US Dollar |
N |
N |
N |
N |
|
Global Equities |
N |
N |
N |
N |
|
Geopolitics |
CBu |
CBu |
CBu |
CBu |
|
Technicals |
N |
N |
N |
Br |
|
Market Sentiment |
N |
N |
N |
Br |
|
Overall View |
N |
N |
N |
Br |
|
N - Neutral Bu - Bullish Br- Bearish CBu - Cautiously Bullish | ||||
|
CBr - Cautiously Bearish |
Tuesday was recovery day in equities, the dollar and in oil...not so in Nat Gas. The recovery from last week’s push to the downside was far from complete as all of the aforementioned markets regained just a portion of the ground lost so far from the current correction pattern. In overnight trading the oil complex has been impacted by two opposing forces...a bullish API crude oil inventory number and a bearish Chinese equity market as China’s Shanghai A shares tumbled again on concern that the Chinese market has been in overdrive for too long. Recall when China’s stock market was showing year to date gains of 80 to 90% I began to wave the caution flag that this market was very susceptible to a downside correction. As shown in the EMI Global Equity Index table below China’s Shanghai A shares are now about 30% below their peak year to gain level seen at the end of July. China has led the global bourses to the upside and it is now putting pressure on all of the major stock indices around the globe. However, as shown in the table the rest of the markets are still holding onto solid year to date gains even though the Index is down by 2.7% so far this week. With mixed support coming from the externals most energy market participants are paying more attention to the fundamentals once again.
As shown in the following table the API crude oil inventory number was the most interesting piece of data reported by the API late yesterday afternoon. The API showed a huge draw of about 6.1 million barrels as refiners increased runs by 0.9% and crude oil imports declined by a little over a million barrels per day. The market obviously reacted positively to this outcome pushing WTI prices back near the $70/bbl mark in early overnight trading. The market was expecting a small build in crude stocks with only a small decline in refinery runs. If the EIA data is in sync with the API crude oil number the market is likely to be in for another volatile and likely upside move if the externals are not too negative. If the EIA data shows a similar draw in crude oil inventories the year on year surplus will be back down to around 50 million barrels while the overhang versus the 5 year average for the same week will drop to about 30 million barrels. It will also suggest that crude may be succumbing to the strong seasonal pattern of destocking during this time of the year.
Refined products were in the projected direction in the API report with gasoline inventory data coming in pretty much in line with most of the expectations. However, distillate stocks increased by a much greater amount than expected suggesting that the return of distillate demand growth is still not happening. The overhang of refined products is continuing to increase as demand is still at best in the embryonic stages of possibly beginning to increase. As such it is a surprise that the refining sector is back into a pattern of increasing refinery run rates at a time when the last thing the market needs at this point in time is more gasoline and diesel fuel. The gasoline driving season is over and economically sensitive diesel fuel demand is still tepid while the heating season is still months away.
|
Projections |
8/19/09 | |||
|
API |
Current |
Change from |
Change from | |
|
Results |
Projections |
Last Year |
5 Year | |
|
mmbls |
vs. Proj. |
vs Proj. | ||
|
Crude Oil |
(6.1) |
1.0 |
57.7 |
37.6 |
|
Gasoline |
(0.8) |
(1.0) |
14.3 |
10.4 |
|
Distillate |
1.5 |
0.5 |
30.7 |
31.8 |
|
Ref. Runs% |
0.9% |
-0.1% |
-2.3% |
-8.5% |
|
Change Level |
83.2% |
83.4% |
85.7% |
91.9% |
If this morning’s EIA report is in line with the API report (that is not a certain) I would categorize the EIA report as mildly bullish (mostly on the back of crude oil). However, the oil sector will still need support from the externals for prices to move above the $70/bbl level in the short term.
Although oil was able to stage a bit of a recovery in prices on Monday that has not been the case for the natural gas market. Natural gas prices have now declined for 10 days in a row (counting this morning’s negative start). As mentioned last week the probability of Nat Gas testing 2002 support levels is increasing daily as NG prices are already trading at levels not seen since early in the third quarter of 2002. The next major support level for Nat Gas is around the $2.50 to $2.60/mmbtu level (minor support in the $2.85 to 430/mmbtu range). Although I have been suggesting that distillate (HO/diesel fuel) in the US is in a borderline glut...natural gas is simply in a glut and has been for months as the market remains oversupplied versus the demand base that has been in play since the worst of the recession began. Over the last 24 hours the market was dealt another blow as the current crop of tropical storms have either fizzled out to rain events or with Hurricane Bill which will clearly remain an Atlantic event and not in harm’s way for any US Nat Gas operations.
As I discussed in detail last week the Nat Gas market will need a quick jolt in industrial demand (not likely) and/or further shut-ins of production (possible) to stop prices from moving strongly below the $3/mmbtu level and down to the 2002 support levels mentioned above. I think we will see prices with a $2 handle sometime this week especially if NG inventories build at a greater than normal rate once again. At the moment the early projections for tomorrow’s EIA NG report are calling for an injection level in the 60’s which would definitely be above the 5 year, same week average but below last’s years injection level for the same week.
That said if the actual number comes in around the projections I do not think it will be enough of a positive to reverse the strong downtrend the NG market is currently locked into. Furthermore, the near term weather continues to be neutral for NG at best as the latest forecast is calling for below normal temperatures across the northeast and mid - Atlantic with normal temperatures for most of the rest of the US.
Interestingly as shown in the EMI Estimated Recovery Premium Analysis table below Natural Gas is now trading very near what I estimate its value should be based on the current fundamentals of Nat Gas. Currently NG is carrying a small premium of less than 3% which I do not see anything happening in the next 24 to 48 hours that will prevent that from being completely wiped out. On the other hand the recovery premium for crude oil is still above the 70% level and clearly a further demonstration of my writings from last Friday discussing the much stronger influence of the perception of an economic recovery trade on the oil complex and not on the NG complex.
|
EMI Estimated Recovery Premium Analysis | ||||
|
EMI |
Current |
EMI |
EMI | |
|
Est. Value |
Price |
Estimated |
Estimated | |
|
Based on |
7:59 AM |
Recovery |
Recovery | |
|
Fundamentals |
Premium |
Premium % | ||
|
WTI |
$40.00 |
$68.90 |
$28.90 |
72.3% |
|
Brent |
$40.00 |
$71.81 |
$31.81 |
79.5% |
|
HO |
$1.2500 |
$1.8503 |
$0.6003 |
48.0% |
|
RBOB |
$1.5000 |
$1.9800 |
$0.4800 |
32.0% |
|
Nat Gas |
$3.000 |
$3.076 |
$0.076 |
2.5% |
We are now approaching the mid-point in this week’s trading session and so far oil is still surprisingly up on the week while the spot NG Nymex price is already lower by over 4% so far. The externals are in non-supportive mode with equities lower by 1 to 2% (depending on where in the world) and the dollar has firmed marginally so far. With inventory reports today and tomorrow and a light schedule of economic data we could see oil losing its weekly gains accumulated so far unless this morning’s inventory report is much more bullish than the API report suggested last night for crude oil.
My market views are detailed in the table at the beginning of the newsletter. I remain solidly neutral for oil with just a slight bias to the downside in the short term (my opinion can easily be swayed after this morning’s inventory report is released) and simply bearish for Nat Gas.
Specs should expect a high level of volatility today, especially after the release of the EIA report. Externals will play a role of some sort today so be cognizant of what is happening in equities and the dollar in formulating your short term flat price strategies. Buy side hedgers should sit back today and wait for the next move to the downside to once again add more hedges to your hedge portfolios.
Currently prices are lower across the board for everything other than the dollar/euro switch.
|
Current Expected Trading Range |
Expected Trading Range | |||
|
8/19/09 |
Change |
Low |
High End | |
|
From |
End Support |
Resistance | ||
|
8:00 AM |
Yesterday | |||
|
Sep WTI |
$68.95 |
($0.24) |
$58.00 |
$73.50 |
|
Sep HO |
$1.8507 |
($0.0143) |
$1.7500 |
$1.9690 |
|
Sep RBOB |
$1.9800 |
($0.0202) |
$1.8800 |
$2.0800 |
|
Sep NG |
$3.081 |
($0.015) |
$2.850 |
$3.600 |
|
Dow Futures |
9,135 |
(72) |
8,920 |
9,640 |
|
Euro/$ |
1.4129 |
(0.0010) |
1.3750 |
1.4500 |
|
Yen/$ |
1.0640 |
0.0071 |
1.0000 |
1.0650 |
Dominick A. Chirichella
Energy Market Analysis is published daily by the Energy Management Institute , 1324 Lexington Avenue, # 322, New York, NY 10128. Copyright 2008. Reproduction without permission is strictly prohibited. Subscriptions: $129 for annual orders. Editor in Chief: Dominick Chirichella, Publisher: Stephen Gloyd, Editor Sal Umek.
EMA has authorized Futures to publish its report once a week on Wednesday prior to the EIA release. For information on how receive the report everyday look below.
PH: (888) 871-1207
Email info@energyinstitution.org
Subscribe here Free Trial Here
Information and opinions expressed in this publication are intended to provide general market awareness. The Energy Management Institute and the Energy Market Analysis are not responsible for any business actions, market transactions, or decisions made by its readers based on information published in this report. Readers of the Energy Market Analysis use this market information at their own risk.
This message and any attachments relate to the official business of the Energy Management Institute ("EMI") and are proprietary to EMI. This e-mail transmission may contain information that is proprietary, privileged and/or confidential and is intended exclusively for the person(s) to whom it is addressed. Any use, copying, retention or disclosure by any person other than the intended recipient or the intended recipient's designees is strictly prohibited.
Check out the EMI’s 2009 Energy Training Calendar Energy Management Institute offers a full range of advanced learning courses for energy professionals. Visit for our current course listing. EMI courses are available nationwide
