Weekly energy inventory report preview for Jan. 13

Quote of the Day

“Don’t quack like a duck...soar like an eagle.”

Ken Blanchard

EMI QuickView Short Term Market Overview

Impact on Energy Prices

Price Drivers

Crude

Gasoline

HO/Diesel

Nat Gas

Supply

N

N

N

N

Demand

N

N

N

N

Inventories

N

N

N

N

US Dollar

N

N

N

N

Global Equities

N

N

N

N

Geopolitics

CBu

CBu

CBu

CBu

Technicals

CBr

CBr

CBr

CBr

Market Sentiment

N

N

N

CBr

Overall View

N

N

N

CBr

Bias

CBr

CBr

CBr

CBr

N - Neutral Bu - Bullish Br- Bearish CBu - Cautiously Bullish

CBr - Cautiously Bearish

Transition week continued in the energy and financial sectors on Tuesday after news of China changing its monetary policy toward a bias to tightening as well as a changing energy fundamental and weather landscape. All of the drivers that have brought oil, Nat Gas and the externals to range high levels over the last month or so have all either changed or are in a changing pattern. The U.S. dollar has been flip flopping all week showing weakness on Monday, strength on Tuesday and now back to weakness so far this morning. The uncertainty surrounding the direction of the dollar is a result of the markets concern over the speed and depth of the economic recovery in the developed world coupled by concern that early monetary intervention by countries like China (one of the main economic growth engines of the world) may slow the growth of the emerging markets more quickly than anticipated. This uncertainty has forced investor/traders to re-evaluate their investment strategy with a possible outcome of lowering some of their portfolio risk out of higher risk asset classes and back into safe haven dollars. It is still a bit too early to conclude that this is absolutely the new and sustainable trend but the last few trading session sure suggest that the investment thinking prevalent for the last month or so could be changing.

Equity markets also continue to transition after simply increasing for the last several weeks. The EMI Global Equity Index (table shown below) is now about 0.2% lower on the week but still showing a year to date gain of 1.9%. Although China staged a bit of a recovery over the last 24 hours China remains the only bourse in the EMI Index that is still negative for the year so far. The biggest surprise in the world of global equities is the fact that Japan has clearly taken the lead as the number one bourse in the Index with a 3.2% gain for the year so far. Although everyone has already assumed most major global economies will at some point switch their monetary policies to less accommodative in 2010 the move by China over the last two weeks has brought the possibility of higher interest rates into focus. Higher interest rates will be a drag on the global equity markets and thus a drag on energy demand growth.

EMI Global Equity Index

1/13/10

Change

Change

2010 YTD

2010

From

From

Change

7:41 AM

Yesterday

Yesterday %

%

US/Dow Jones

10,627

(37)

-0.34%

1.9%

Can/S&P-TSX

11,820

(127)

-1.06%

0.6%

Lon/FTSE

5,499

(39)

-0.71%

1.6%

Paris/Cac 40

4,004

4

0.09%

1.7%

Germany/Dax

5,962

19

0.32%

0.1%

Japan/Nikkei

10,879

81

0.75%

3.2%

HongKong/HangSeng

22,327

(85)

-0.38%

2.1%

Aussie/SYDI

4,932

(50)

-1.00%

1.0%

China/Shanghai A

3,434

64

1.91%

-0.1%

Brazil/Bvspa

70,076

(358)

-0.51%

2.2%

EMI Global Equity Index

14,956

(53)

-0.1%

1.9%

Speaking of energy demand growth following are the highlights of the latest EIA Short Term Energy Outlook report released yesterday afternoon. Yesterday’s EIA report was mostly as expected with no great surprises. Their forecast for oil demand growth for 2010 remains the same as what was forecast in the December report. As one can see from the highlights below the common thread of the entire forecast is the sustainability of the global economic recovery. The IEA will release their report on Friday morning.

Crude Oil and Liquid Fuels Overview: The world oil market should gradually tighten in 2010 and 2011, provided the global economic recovery continues as projected. While countries outside of the Organization for Economic Cooperation and Development (OECD) will lead 2010 demand recovery, OECD countries should begin to show significant oil demand growth in 2011 in response to improving economic conditions. Projected economic growth in the OECD more than doubles from 1.2% in 2010 to 2.7 percent in 2011.

Although compliance with cuts announced by the OPEC has weakened and global oil inventories and spare production capacity remain very high by historical standards, expectations of a continued global economic turnaround have continued to buttress oil markets. EIA expects that WTI prices, which have been trending upward since February 2009, will continue to increase in 2010 and 2011.

Global Crude Oil and Liquid Fuels Consumption: Global oil demand declined in 2009 for the second consecutive year, the first time since 1983 that this had occurred. The decline bottomed out in the middle of 2009, as the world economy began to recover in the last half of the year. EIA expects this recovery to continue in 2010 and 2011, contributing to global oil demand growth of 1.1 million barrels per day (bbl/d) in 2010 and 1.5 million bbl/d in 2011. Non-OECD countries are likely to account for most of this growth in 2010, although projected demand in the United States increase slightly by 0.2 million bbl/d after a very weak 2009. China continues to lead world consumption growth with projected increases of more than 0.4 million bbl/d in both 2010 and 2011.

Non-OPEC Supply: Non-OPEC oil supply increased by more than 0.6 million bbl/d in 2009, the largest annual increase since 2004. Higher production in the United States, Brazil, and the Former Soviet Union (FSU) were the largest contributors to this growth. However, very little net increase in non-OPEC supply is expected over the forecast period.

OPEC Supply: EIA expects that annual average OPEC crude oil production, which declined by almost 2.2 million bbl/d on average in 2009, will increase by an average of about 0.5 million bbl/d per year through 2011 as global oil demand recovers. OPEC surplus crude oil production capacity, which averaged 2.8 million bbl/d during the 1998-2008 will continue to remain high, with surplus capacity reaching almost 6 million bbl/d by the end of the forecast period. OPEC is scheduled to meet in Vienna on March 16, 2010, to reassess the market.

OECD Petroleum Inventories: EIA estimates OECD commercial oil inventories were 2.69 billion barrels at the end of 2009, equivalent to about 58 days of forward cover, and about 80 million barrels more than the five-year average for the corresponding time of year. Projected OECD oil inventories remain at the upper end of the historical range over the forecast period.

U.S. Natural Gas Consumption: EIA estimates that total natural gas consumption fell by 1.5% in 2009, primarily because of the economic downturn. Total annual natural gas consumption is forecast to remain relatively unchanged in 2010. Forecast total natural gas consumption increases by 0.4% in 2011, led by a 2.5% increase in consumption in the industrial sector.

U.S. Natural Gas Inventories: On Jan. 1, 2010, working natural gas in storage was 3,123 Bcf, 316 Bcf above the previous five-year average (2005-2009) and 286 Bcf above the level during the corresponding week last year. Colder-than-normal temperatures in December 2009 contributed to an estimated storage withdrawal of 665 billion cubic feet, 32% above the previous five-year average December drawdown. Despite the large December draw and a projected first-quarter 2010 inventory withdrawal about 6% greater than the previous five-year average, the expected end-of-March 2010 storage level of 1,734 Bcf will be about 16% (237 Bcf) greater than the previous five-year average for that period.

Yesterday the API released their weekly oil inventory report with the more widely followed EIA inventory snapshot due out this morning at 10:30 AM EST. The API results are summarized in the following table along with the projections for this week and comparisons to last year and the five year average for the same week assuming the actual EIA numbers are in line with the projections. The API data can be described with one word — BEARISH. Every aspect of the API report was bearish especially on the refined product side of the barrel.

Projections

1/13/10

API

Current

Change from

Change from

Results

Projections

Last Year

5 Year

mmbls

vs. Proj.

vs. Proj.

Crude Oil

1.2

1.0

1.8

18.6

Gasoline

6.8

0.5

6.7

5.4

Distillate

3.6

(1.5)

13.4

24.2

Ref. Runs%

0.3%

-0.1%

-5.4%

-7.9%

Change Level

79.8%

79.8%

85.2%

87.6%

The API reported a 1.2 million barrel build in crude oil even though refinery utilization rates increased by 0.3%. The crude build was within the expectations. However the big surprise for the week was the meteoric build in gasoline stocks coupled with the huge build in distillate stocks (even though last week’s weather was the coldest of the season so far). The API data supports my comment that the concern over the unexpected shut down of several refinery units may have a negative impact on gasoline supply is much to do about nothing. It also supports my other comment that gasoline prices have been the most overvalued in the oil complex. Although the API data was extremely bearish we have to wait a few more hours for the EIA data to be released. Recall last week I mentioned a study done by Bloomberg suggesting that the API data is out of line with the EIA data about 25% of the time.

If the EIA data is in line with the API results the oil complex is likely be hit with a strong round of selling with gasoline prices leading the way lower. The only variable we would have to watch is will the buy only investment community view any significant dip in oil prices as yet another buying opportunity.

Tomorrow the EIA will release their latest snapshot of Nat Gas inventories. I am expecting a much stronger net withdrawal from inventory this week of about 200 to 225 BCF. The industry range goes from about 180 to 270 BCF. As long as the actual results come in within the range of either of the projections it will be a significantly larger draw then either last year’s 88 Bcf decline or the five-year average draw of 76 BCF. However, this week’s NG withdrawal could be the largest of the season and hold that distinction for some time as the warming weather is certain to reduce heating related NG consumption.

My individual market views remain the same for today and are detailed in the table at the beginning of the newsletter. All of the commodities in the energy complex have broken down below their respective technical support levels (as discussed yesterday) and are likely to trade below these levels at least for the next several sessions unless this morning’s EIA oil inventory report is wildly bullish.

Currently everything in the EMI Price Board is starting the day lower except for a minor gain in equity futures and non-dollar denominated currencies.

Current Expected Trading Range

Expected Trading Range

1/13/10

Change

Low

High End

From

End Support

Resistance

7:41 AM

Yesterday

Feb WTI

$80.03

($0.76)

$77.15

$82.50

Feb Brent

$78.60

($0.70)

$76.25

$82.25

Feb HO

$2.1108

($0.0210)

$2.0375

$2.1500

Feb RBOB

$2.0700

($0.0278)

$2.0200

$2.1100

Feb NG

$5.533

($0.058)

$5.300

$5.850

Dow Futures

10,598

10

10,000

10,800

US Dollar Index

76.8

(0.320)

74.500

79.250

Euro/$

1.4569

0.0074

1.3750

1.5250

Yen/$

1.0966

(0.0025)

1.0600

1.1600

Best regards

Dominick A. Chirichella

dchirichella@mailaec.com

Energy Market Analysis is published daily by the Energy Management Institute1324 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 to 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.

About the Author
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 to 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.

Comments
comments powered by Disqus
Check out Futures Magazine - Polls on LockerDome on LockerDome