Quote of the Day
“I’d say it’s been my biggest problem all my life...it’s money. It takes a lot of money to make these dreams come true.”
Walt Disney
|
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 |
Bu |
Bu |
Bu |
Bu |
|
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 mostly catch up day in the U.S. markets after being closed on Monday for the last big weekend of the summer. The big driver on Tuesday was yet another significant downward move in the U.S. dollar as investors moved more money from the safe haven of the dollar into higher risk type investments. Today the onslaught of fundamental assessments begins to hit the media airwaves along with the OPEC meeting which begins late this afternoon (NYT). As I mentioned in yesterday’s report, this week will likely be primarily impacted by fundamentals with the externals taking an uncharacteristic back seat, but only temporarily (as we already saw on Tuesday). The first report to impact the market will be the EIA Short Term Energy Outlook later this morning. In this report we will get the latest update on forward demand for all of the main energy products as well as the EIA’s forecast of both OCED and U.S. inventories. In addition they will provide the latest details on how well OPEC complied with their export cuts for the month of August. OPEC’s compliance has been drifting lower over the last several months as crude oil prices have continued to rise. July’s compliance was down to about 54% basis the EIA data from last month’s Short Term Energy Outlook (STEO) report. I suspect this will be a major discussion item at the OPEC meeting this afternoon.
I am expecting the EIA report to be biased to the bullish side for oil as it should project an improved oil demand picture for the remainder of 2009 as well as 2010 based on the improved outlook for the global economies as of late. Implied demand has been trending up for all of the main oil products in the U.S. including total demand with the sole exception of HO/diesel fuel. However, with manufacturing on the cusp of a rebound in the US we could see a more optimistic picture for even HO/diesel in this report. In addition I am expecting the EIA to also show an improved inventory picture, less of a projected overhang versus last month’s report.
On the natural gas front I am not expecting any significant improvement in the supply & demand balances in this month’s report versus last month’s STEO. Even with an improved economic outlook I think the best the natural gas bottom pickers can hope for out of this report is a neutral bias. Unless the EIA report is projecting an immediate cut in production I do not see anything that will be in the forecast that should show anything other than inventories setting new all time record highs heading into the upcoming winter heating season.
Before I discuss my thoughts on the outcome of this afternoon’s OPEC meeting I want to first present my projections for tomorrow’s EIA weekly round of inventory reports. The following table shows my projections for the EIA oil report due out (one day delayed) on Thursday morning at 10:30 am EST. I am expecting a modest decline in both crude oil and gasoline and yet another build in distillate stocks are refiners continue to ramp up refinery utilization rates. Crude oil inventories likely declined about 3.2 million barrels on the week as an increase in refinery runs increased demand for crude oil this week. If the actual data is in sync with the projected crude oil decline the year on year surplus will be at 42.2 million barrels while the 5 year, same week overhang will be down to 33.1 million barrels. Still a long way to go before crude oil stock levels are near normal but realize that crude oil stocks will have declined by about 35 million barrels since the destocking pattern started in early May (assuming the actuals match my projection). This is a good start for OPEC heading into the low demand 3rd quarter if they maintain their resolve and thus avoid a potential major collapse in oil prices prior to the high winter demand period.
I expect gasoline stocks will decline for the seventh week in a row as demand likely increased during the long Labor Day holiday weekend in the US. Even with another modest decline in gasoline stocks the year on year overhang will still be hovering around 15.5 million barrels while the more normal five-year average for the same week will still show a surplus of about 7.6 million barrels. On the distillate front we are expecting another seasonal build of about 900,000 barrels as diesel demand is still somewhat sluggish. The year over year surplus is projected to still be about 34 million barrels while the five-year, same week overhang will be just a tad below the 30 million barrel mark. Overall, I would categorize this week’s oil inventory report as neutral with a slight bias to the bearish side as a result of the almost 92 million barrel combined year on year surplus for the three main commodities (shown in the table) in the oil complex.
|
Projections |
9/8/09 | |||
|
API |
Current |
Change from |
Change from | |
|
Results |
Projections |
Last Year |
5 Year | |
|
mmbls |
vs. Proj. |
vs. Proj. | ||
|
Crude Oil |
(3.2) |
42.2 |
33.1 | |
|
Gasoline |
(1.6) |
15.5 |
7.6 | |
|
Distillate |
0.9 |
34.0 |
29.6 | |
|
Ref. Runs% |
0.5% |
9.4% |
-1.3% | |
|
Change Level |
87.7% |
78.3% |
89.0% |
I am expecting the EIA will show another strong injection level of natural gas into inventory when their weekly report is issued on Thursday morning. I am expecting a build of about 85 BCF which would be in line with the five-year average for the same week but above last year’s injection level of 67 BCF. Natural gas inventories are on a clear path to break the all time record of 3,565 BCF hit in October of 2007 over the next two to three weeks. There is nothing in the short term that is going to have a major impact on either supply or demand. The tropicals are quiet while temperatures for the next several weeks are projected to be below normal along the eastern half of the U.S., normal in the mid-section of the country and a bit above normal out west. Natural gas will be viewed as bearish this week and will likely make another attempt to trade below the technical support level from 2002.
Let’s return back to the OPEC meeting. As I suggested in yesterday’s report I am expecting OPEC to roll over their existing agreement for the second meeting in a row and also mention in the final communiqué that they are encouraged by the improvement of the global economy but that it is too early to make any changes to their existing strategy as global inventories are still at above normal levels and the economy is fragile. They are also likely to mention in the communiqué that all member countries are encouraged to abide by the existing agreement and increase their compliance level to avoid a precipitous drop in oil prices as the industry heads into the normally low demand 3rd quarter of the year.
As shown in the following chart OPEC has come a long way from where oil prices were earlier this year. The so called unofficial price target of $75/bbl initially introduced by the King of Saudi Arabia well over a year ago is not too much above where current levels are at this point in time. In fact the spot Nymex WTI price actually hit a high of $74.96 on August 25th and unless OPEC really drops the ball and overproduces (via very low compliance levels) in all likelihood I would expect crude oil prices to trade above $75/bbl before the year is out. Although the average annual price for crude oil for the entire year 2009 will not exceed $75/bbl the stage is being set for a decent probability of 2010 averaging at or above $75 especially if the global economy does not slip back into another recession period.
Just yesterday the Saudi Oil Minister said that current oil prices are good for everyone and the global crude oil market is now in good shape. He went on to say that $68 to $73/bbl is satisfactory for both consumers and producers. His comments strongly suggest that Saudi Arabia will not support anything other than a rollover agreement and historically the Saudi position heading into an OPEC meeting is generally the OPEC position heading out of the meeting.
The price impact of the OPEC meeting will not hit the markets until well after the U.S. closes and about the time when the Asian markets get underway. My market views remain as detailed in the table at the beginning of the newsletter. Remember all should focus on the fundamentals this week as they will take center stage for the next several days.
Currently prices are trading slightly higher on a weaker dollar.
|
Current Expected Trading Range |
Expected Trading Range | |||
|
9/9/09 |
Change |
Low |
High End | |
|
From |
End Support |
Resistance | ||
|
7:49 AM |
Yesterday | |||
|
Oct WTI |
$71.52 |
$0.42 |
$67.00 |
$72.30 |
|
Oct Brent |
$70.06 |
$0.64 |
$66.00 |
$72.00 |
|
Oct HO |
$1.7908 |
$0.0083 |
$1.6900 |
$1.9690 |
|
Oct RBOB |
$1.8378 |
$0.0089 |
$1.7200 |
$1.9600 |
|
Oct NG |
$2.857 |
$0.050 |
$2.500 |
$3.000 |
|
Dow Futures |
9,500 |
4 |
8,920 |
9,640 |
|
US Dollar Index |
77.315 |
(0.025) |
77.100 |
79.250 |
|
Euro/$ |
1.4513 |
0.0024 |
1.3750 |
1.4680 |
|
Yen/$ |
1.0815 |
(0.0018) |
1.0600 |
1.1030 |
Best Regards
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
