Quote of the Day
"Setting an example is not the main means of influencing another, it is the only means."
Albert Einstein
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EMI QuickView Short Term Market Overview | ||||
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Impact on Prices | ||||
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Price Drivers |
Crude |
Gasoline |
HO/Diesel |
Nat Gas |
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Supply |
Br |
Br |
Br |
Br |
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Demand |
Br |
Br |
Br |
Br |
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Inventories |
Br |
Br |
Br |
Br |
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US Dollar |
N |
N |
N |
N |
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Global Equities |
N |
N |
N |
N |
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Geopolitics |
CBu |
CBu |
CBu |
CBu |
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Technicals |
CBu |
CBu |
CBu |
CBu |
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Market Sentiment |
N |
N |
N |
N |
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Overall View |
N |
N |
N |
N |
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Bias |
N |
N |
N |
N |
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N - Neutral Bu - Bullish Br- Bearish CBu - Cautiously Bullish | ||||
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CBr - Cautiously Bearish |
Yesterday was a mixed day with the entire energy complex firming even though equity markets around the world were mixed and the U.S. dollar ended the day marginally stronger. So far in overnight trading the dollar is firm, equities are weaker and the energy complex has already given back most of yesterday’s gains. Ever since the dollar weakened to the 1.50 level versus the euro the dollar has been firming and is now stronger for the third day in a row. As mentioned earlier this week we are in the midst of a mini-correction for everything and most of the corrections we have encountered over the last 6 months have lasted at least a week or so. Thus we can expect more of the same over the rest of this week with above normal levels of volatility.
On the economic front most of the data this week has been positive as have most of the corporate earnings that have been released. However, equity markets around the globe remain under pressure as shown in the EMI Global Equity Index table below. So far the EMI Index is down by 3.5% on the week bringing the year to date gain for the Index to 44.1%. For the first time in a long time the Brazilian bourse is now below the 70% level for year to date gains. This week’s decline in the Index is now about equal to the magnitude of gains from the last two weeks. Thus the Index is back trading at the level from three weeks ago. For the moment the equity complex is a negative for energy and other commodities.
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EMI Global Equity Index | ||||
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10/28/09 |
Change |
Change |
2009 YTD | |
|
From |
From |
Change | ||
|
7:15 AM |
Yesterday |
Yesterday % |
% | |
|
US/Dow Jones |
9,882 |
14 |
0.14% |
12.6% |
|
Can/S&P-TSX |
11,054 |
(181) |
-1.61% |
23.0% |
|
Lon/FTSE |
5,201 |
9 |
0.18% |
18.4% |
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Paris/Cac 40 |
3,683 |
(61) |
-1.62% |
14.5% |
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Germany/Dax |
5,553 |
(82) |
-1.46% |
15.4% |
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Japan/Nikkei |
10,212 |
(150) |
-1.45% |
15.3% |
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HongKong/HangSeng |
22,170 |
(420) |
-1.86% |
55.7% |
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Aussie/SYDI |
4,755 |
(78) |
-1.61% |
32.4% |
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China/Shanghai A |
3,171 |
(93) |
-2.84% |
64.8% |
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Brazil/Bvspa |
63,161 |
(1,925) |
-2.96% |
68.2% |
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EMI Global Equity Index |
13,884 |
(297) |
-1.5% |
44.1% |
The currency markets are also in a bit of turmoil this week as first and foremost the dollar is in the midst of a modest short covering rally brought on by a market sentiment that is starting to worry that the easy money policy employed by central banks around the world is now much closer to ending than beginning. As I detailed in an earlier newsletter when central bankers begin to switch from an accommodative policy to a tightening policy all of the markets we follow will be impacted at least for a period of time. Much like the rally we have seen over the last six months in equities, energies, commodities and the subsequent decline in the dollar have all been part of the perception rally in anticipation of the economic recovery. A rally that started well before the economy began to recover and may be peaking just as the recovery begins to emerge. This is a normal pattern for most markets in that they trade and price in events prior to their occurrence. We are beginning to price in the beginning of a tighter monetary policy. It is still not clear to me if we will be embarking on a bearish medium term downtrend (uptrend for the dollar) just yet but we may be in for a bit longer and deeper correction than what we have seen in the past.
Today oil participants will get the latest snapshot of the EIA inventory data. Late yesterday afternoon the API released what appears to be a bullish fundamental assessment but one that the market has been ignoring at this moment as the externals remain the main focal point. The API results are shown in the table below along with my projections for the EIA report as well as a comparison to last year and the five-year average for the same week on the premise that the actual EIA data is in sync with the projections.
The API showed a huge surprise decline in crude oil stocks of 3.5 million barrels as refinery runs increased by 0.3% and crude oil imports declined by about 116,000 barrels per day. The crude oil decline seems much larger than one would expect basis the marginal increase in refinery runs and the small decline in imports. That said if the EIA data is in line with the API data the crude oil year over year surplus would narrow to 23.7 million barrels while the overhang versus the five-year average for the same week would drop to 23.9 million barrels. If the EIA data is in sync with the API it would result in the smallest crude oil surplus in months.
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Projections |
10/28/09 | |||
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API |
Current |
Change from |
Change from | |
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Results |
Projections |
Last Year |
5 Year | |
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mmbls |
vs. Proj. |
vs. Proj. | ||
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Crude Oil |
(3.5) |
1.2 |
28.4 |
28.6 |
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Gasoline |
(0.3) |
(1.0) |
11.0 |
7.6 |
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Distillate |
(0.7) |
(0.2) |
43.1 |
41.4 |
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Ref. Runs% |
0.3% |
-0.2% |
-4.4% |
-5.5% |
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Change Level |
81.8% |
80.9% |
85.3% |
86.4% |
On the refined product side the API reported a smaller than expected draw in gasoline stocks and larger than expected decline in distillate stocks. With API reporting an increase in refinery utilization rates the decline in refined products was a bit of a surprise. However, the refining sector has been minimizing gasoline production and I suspect there was a small increase in demand this week. On the other hand the colder than normal weather we have seen in parts of the U.S. over the last week or so likely contributed to the larger than expected decline in distillate stocks mostly in the form of heating oil. If the EIA data is in sync with the API report the overhang for both gasoline and distillate fuel would only change marginally from what is already shown in the table. The interpretation of the overhang would also not change so much…gasoline is moving closer to more historically normal levels and if the current gasoline destocking pattern continues we could possibly see gasoline approaching normal levels by year end. On the other hand distillate duels remain in a glut and will likely remain strongly oversupplied unless both heating and transportation fuel demand increases strongly and quickly.
At the moment the energy market is moving in sync with what is going on in the externals. If both equities and the dollar remain unsupportive for oil this morning’s EIA oil inventory report may turn into being a market mover especially if it is bearish. Over the last six months the market has discounted bearish fundamentals as long as the externals were supportive and driving prices higher. Each time the externals were in mini-correction pattern the fundamentals moved higher on the list of oil market drivers. We seem to be in that pattern at the moment so do pay close attention to the outcome of this morning’s report and do not be surprised if there is an immediate price direction reaction to the report whether it is bearish or bullish. As mentioned above the API report was bullish and if the EIA data is in line with the API report it could result in oil temporarily uncoupling itself from the externals.
Tomorrow we get a snapshot of the latest EIA Nat Gas inventories. Unless there is a surprise withdrawal from inventories (highly unlikely) the one guarantee that will come from the report is Nat Gas inventories will set yet another all time record high level and more closer to maximum U.S. storage capacity. The early forecasts are calling for an injection of 20 to 40 BCF With a consensus in the low thirties. If the actual data is in line with the consensus it would result in another week of lower than normal injection rates as last year the injection level was 49 BCF while the five-year average injection for the same week was at 43 BCF. Even if the injection rate is slowing there is still a glut of Natural gas that is not going to dissipate any time soon unless heating demand and industrial demand surges quickly.
My individual market views are detailed in the table at the beginning of the report. I have downgraded several of my short term views to neutral as we are clearly in a correction for everything we follow. My bias at the moment is listed as neutral but for the more aggressive spec traders one has to follow the short term trend which is downward so far this week.
Caution remains the keyword as volatility will remain high and prices can reverse direction on a moment’s notice for minimal reason. Not only do we have oil inventories today, Nat Gas inventories tomorrow we also get another snapshot of 3rd quarter GDP which is certain to be a market mover as well the expectation that Iran will formally respond to the draft nuclear agreement either today or more likely tomorrow. I expect the correction we are in to last at least through this week and possibly beyond.
Currently everything in the EMI price board is lower except for the dollar which is firming.
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Current Expected Trading Range |
Expected Trading Range | |||
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10/28/09 |
Change |
Low |
High End | |
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From |
End Support |
Resistance | ||
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7:15 AM |
Yesterday | |||
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Dec WTI |
$78.87 |
($0.68) |
$75.50 |
$80.00 |
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Dec Brent |
$77.24 |
($0.68) |
$72.00 |
$80.00 |
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Nov HO |
$2.0392 |
($0.0159) |
$1.9300 |
$2.1200 |
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Nov RBOB |
$2.0540 |
($0.0165) |
$1.9300 |
$2.0800 |
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Nov NG |
$4.545 |
($0.012) |
$4.000 |
$5.500 |
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Dow Futures |
9,783 |
(52) |
9,870 |
10,100 |
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US Dollar Index |
76.455 |
0.175 |
74.500 |
79.250 |
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Euro/$ |
1.4773 |
(0.0033) |
1.3750 |
1.5250 |
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Yen/$ |
1.0978 |
0.0080 |
1.0600 |
1.1400 |
Best regards
Dominick A. Chirichella
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