Quote of the Day
“Do, or do not. There is no try.”
Anonymous
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EMI QuickView Short Term Market Overview | ||||
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Impact on Energy Prices | ||||
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Price Drivers |
Crude |
Gasoline |
HO/Diesel |
Nat Gas |
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Supply |
N |
N |
N |
N |
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Demand |
N |
N |
N |
N |
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Inventories |
N |
N |
N |
N |
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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 |
N |
N |
N |
N |
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Market Sentiment |
CBu |
CBu |
CBu |
CBu |
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Overall View |
N |
N |
N |
N |
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Bias |
CBu |
CBu |
CBu |
CBu |
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N - Neutral Bu - Bullish Br- Bearish CBu - Cautiously Bullish | ||||
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CBr - Cautiously Bearish |
After spending most of the day in negative territory oil & Nat Gas prices staged a decent recovery on light volume and basically no news to end the session higher on the day. The big events of the day turned out to be mostly uneventful, OPEC rolled over their existing agreement as expected while the U.S. reported the final Q3 GDP at a lower than expected level of 2.2% suggesting the recovery is slower than anticipated but on the other hand existing home sales rose modestly more than expected resulting in the economic reports of the day neutralizing each other. I would guess the biggest event of the day turned out to be the ongoing movement of more and more participants to the exits ahead of the long holiday period. The last two remaining potential market moving events for oil and natural gas will be the EIA reports due out today for oil and tomorrow for natural gas.
The oil market reports actually began late yesterday afternoon when the API released what appears to be a bullish oil inventory report. The following table summarizes the API results along with my projections and a comparison to last year and the five-year average assuming the actual EIA data is in line with the projections. The big number for third week in a row was the larger than expected decline in crude oil stocks of about 3.7 million barrels. If the EIA data is in line with the API results the year over year overhang of crude oil will decline to 10.5 million barrels or the smallest overhang for the entire year. Crude oil stocks are hovering around the same level they were at in the beginning of the year. Although the API report was bullish for crude oil most of the drawdown continues to be the result of yearend inventory tax planning rather than a major change in crude oil demand. In fact crude oil demand (as measured by refinery utilization rates) remains around the lowest level of the year.
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Projections |
12/23/09 | |||
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API |
Current |
Change from |
Change from | |
|
Results |
Projections |
Last Year |
5 Year | |
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mmbls |
vs. Proj. |
vs. Proj. | ||
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Crude Oil |
(3.7) |
(0.9) |
13.3 |
19.6 |
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Gasoline |
(1.1) |
1.0 |
10.9 |
12.3 |
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Distillate |
(0.7) |
(2.2) |
26.8 |
35.8 |
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Ref. Runs% |
-0.2% |
0.2% |
-0.2% |
-6.2% |
|
Change Level |
78.4% |
80.2% |
80.3% |
86.4% |
Once again the decline in crude oil stocks in the API report was predominately in the USGC or PADD 3 while PADD 2 built yet again. In fact PADD 2 stocks according to the API report are very close to hitting all time record high levels and for the last two weeks are surprisingly not negatively impacting the WTI/Brent spread (as high inventories in PADD 2 normally do). In fact as shown in the following chart the WTI/Brent spread is now trading well above the targeted technical objective of $0.60/bbl that we predicted in last week’s report. I still like being long WTI/short Brent but I believe the spread is getting to the point where it is susceptible to a downside correction. For those still in the spread I suggest using about a $0.40/bbl trailing stop basis settlement prices. The biggest exposure to the spread still remains the significant amount of oil in storage in both PADD 2 and Cushing, Ok.
On the refined product front both gasoline and distillate fuel stocks declined on the week on a combination of colder than normal weather, a likely bump-up in demand for diesel fuel as a result of holiday sales deliveries in the United States, a one-week increase in gasoline demand on pre-purchasing as a result of the large snowstorms last week as well as a small decline in refinery utilization rates. The biggest surprise in this area was the actual decline in gasoline stocks of about 1.1 million barrels reported by the API as most were expecting another week of builds. The only reason for the decline that seems to make sense to me at this point is what was likely a lot of people along the east coast filling up their tanks in anticipation of the huge snow storm that blanketed that area late last week. If this turns out to be the case it will likely be a temporary inventory movement for gasoline with stocks resuming their normal seasonal building pattern possibly as early as in next week’s numbers.
Distillate stocks declined about 700,000 barrels on the week in the API report or much lower than expected by most of the projections. The EIA number will be closely watched to see if the API number is the real thing this week. If so it might possibly be suggesting that diesel demand resulting from deliveries of holiday sales items may not be as strong as last week’s number suggesting that holiday sales may not be a robust as predicted. If holiday sales are not as robust it could turn out to be another indicator that says the U.S. economic recovery is only slowly evolving. Taking the analogy one step further if the aforementioned were the case it would also suggest that the U.S. Central Bank (Fed) is not likely to raise interest rates anytime soon. A bit bearish for the dollar and one that could ultimately result in capping out the current recovery rally for the dollar.
With the current forecasted weather pattern for the eastern half of the United States still projected to experience colder than normal temperatures through about the first week of January 2010, it should result in above normal consumption of all of the main heating fuels and a corresponding reduction in inventory levels. Tomorrow the IEA will release the latest snapshot of natural gas inventories. At the moment the industry is projecting a draw of about 160 to 190 BCF. If the actual results come in within the expectations it would once again exceed both last year’s withdrawal of 144 BCF and the five-year average draw for the same week of 128 BCF. It would be the third week in row of the overhang narrowing versus both last year and the five-year average. Nat gas prices have been in a recovery mode (as we have been discussing for the last two weeks) and are now solidly trading a new trading range of about $5.3/mmbtu on the lower end to about $6.20/mmbtu on the upper end. It has been in this range for the last several weeks and as long as cold weather remains in place it is likely to continue to trade in this range.
The externals are marginally supportive for energy prices with the U.S. dollar a bit weaker in overnight trading while the global equity markets are mostly higher as measured by the EMI Global Equity Index table shown below. Over the last 24 hours the EMI Index has recovered all of its losses for the week and is now higher by about 1.4%. The year to date gain is now up to 49.6% with every bourse in the Index gaining ground in the last 24 hours, is this the beginning of the so called Santa Clause rally? With a lack of liquidity hitting all markets both commodity and financials alike any moves in either direction may not turn out to be sustainable as we enter the new year and all participants return from holiday.
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EMI Global Equity Index | ||||
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12/23/09 |
Change |
Change |
2009 YTD | |
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From |
From |
Change | ||
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8:24 AM |
Yesterday |
Yesterday % |
% | |
|
US/Dow Jones |
10,465 |
51 |
0.49% |
19.2% |
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Can/S&P-TSX |
11,628 |
73 |
0.63% |
29.4% |
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Lon/FTSE |
5,329 |
35 |
0.65% |
21.3% |
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Paris/Cac 40 |
3,926 |
21 |
0.53% |
22.0% |
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Germany/Dax |
5,972 |
26 |
0.44% |
24.2% |
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Japan/Nikkei |
10,378 |
195 |
1.91% |
17.1% |
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HongKong/HangSeng |
21,092 |
144 |
0.69% |
48.2% |
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Aussie/SYDI |
4,724 |
65 |
1.39% |
31.5% |
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China/Shanghai A |
3,200 |
24 |
0.77% |
66.3% |
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Brazil/Bvspa |
67,418 |
1,493 |
2.26% |
79.5% |
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EMI Global Equity Index |
14,413 |
213 |
1.0% |
49.6% |
My individual market views are detailed in the table at the beginning of the report. Fundamentals should be the main driver for oil and nat gas prices over the next 24 hours. Trading is likely to completely dry-up my very early afternoon New York time tomorrow. So do what you have to do well before that time.
Currently oil & equities are higher while nat gas and the dollar are both starting the day on a negative note.
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Current Expected Trading Range |
Expected Trading Range | |||
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12/23/09 |
Change |
Low |
High End | |
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From |
End Support |
Resistance | ||
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8:24 AM |
Yesterday | |||
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Feb WTI |
$74.86 |
$0.46 |
$65.00 |
$80.00 |
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Feb Brent |
$73.67 |
$0.21 |
$68.00 |
$80.00 |
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Jan HO |
$1.9600 |
$0.0114 |
$1.8800 |
$2.1200 |
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Jan RBOB |
$1.9025 |
$0.0137 |
$1.7500 |
$2.0800 |
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Jan NG |
$5.652 |
($0.063) |
$5.300 |
$6.200 |
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Dow Futures |
10,430 |
22 |
9,870 |
10,600 |
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US Dollar Index |
78.525 |
(0.085) |
74.500 |
79.250 |
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Euro/$ |
1.4271 |
0.0019 |
1.3750 |
1.5250 |
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Yen/$ |
1.0905 |
0.0005 |
1.0600 |
1.1600 |
Note:
The Thursday morning, Dec 24 Energy Market Analysis will be the last issue for 2009. I will resume a normal publishing schedule beginning on January 4, 2010.
Best regards
Dominick A. Chirichella
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