Weekly energy inventory report preview for Jan. 27

Quote of the Day

“Don’t just adopt opinions, develop them.”

Charles Isbell

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

CBr

CBr

CBr

N

US Dollar

CBr

CBr

CBr

CBr

Global Equities

CBr

CBr

CBr

CBr

Geopolitics

CBu

CBu

CBu

CBu

Technicals

CBr

CBr

CBr

CBr

Market Sentiment

CBr

N

N

CBr

Overall View

CBr

CBr

CBr

CBr

Bias

CBr

CBr

CBr

CBr

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

CBr - Cautiously Bearish

Tuesday was back to selling. The market has tried on several occasions to push to higher ground only to be hit with yet another strong round of selling toward the end of the trading session. The market has moved from a buy the dip mentality to sell the rally mentality. The economic data coming out of the United States remains positive as does most corporate earning. So far over 75% of the companies that have reported 4th quarter earnings have beat the analyst expectations. However, the market sentiment remains negative on China’s tightening concerns, the slowness of the economic recovery, the high unemployment level and a variety of other issues all suggesting that the recovery may be slower than originally anticipated.

This afternoon the U.S. Fed will announce the results of the latest two-day FOMC meeting. Most expect the Fed to continue with their low interest rate policy and to end its trillion dollar plus mortgage debt purchase program in March as originally planned. The announcement will likely be more scrutinized than what the actual outcome of the meeting turns out to be as the announcement may shed some light as to the Fed’s future strategy. The Fed meeting outcome will hit the media airwaves at around 2:15 pm today.

Equities markets around the world are still in a downward retracement pattern with the emerging markets leading the way lower. The EMI Global Equity Index is shown below. The Index is now down another 1% on the week bringing the year to date loss to 4.5%. China and Hong Kong are reeling over the Chinese government’s actions to throttle back the economy a bit. Both of these markets are now approaching double digit losses for the year and are creating a very negative cloud over the rest of the markets around the world as well as the outlook for commodity demand. China was one of the main countries projected to increase its energy consumption in 2010. If China’s economy slow substantially the oversupply situation in the oil markets may be around for a much longer period of time than what the latest round of forecasts are showing. The US Dow and Japan’s bourse remain at the top of the Index showing the smallest year to date loss so far.

EMI Global Equity Index

1/27/10

Change

Change

2010 YTD

2010

From

From

Change

7:58 AM

Yesterday

Yesterday %

%

US/Dow Jones

10,194

(3)

-0.03%

-2.2%

Can/S&P-TSX

11,361

7

0.06%

-3.3%

Lon/FTSE

5,277

17

0.31%

-2.5%

Paris/Cac 40

3,782

(25)

-0.66%

-3.9%

Germany/Dax

5,656

(13)

-0.22%

-5.1%

Japan/Nikkei

10,325

(187)

-1.78%

-2.1%

HongKong/HangSeng

20,109

(489)

-2.38%

-8.1%

Aussie/SYDI

4,743

(29)

-0.60%

-2.9%

China/Shanghai A

3,166

(35)

-1.08%

-7.9%

Brazil/Bvspa

65,524

(696)

-1.05%

-4.5%

EMI Global Equity Index

14,014

(145)

-0.7%

-4.5%

Oil prices are marginally higher in overnight trading ahead of this morning’s EIA oil inventory report. Nat Gas remains on the defensive even though another round of below normal temperatures are now hitting a major portion of the US. Unlike the cold spell that hit the end of December and the first half of January this cold spell does not look like it will last for much more than a week or so as a return to more normal weather is forecast in the current NWS 6 to 10 and 8 to 14 day projections. At the moment it does not look like weather will be playing a major role in Nat Gas or Heating oil for the next several weeks as inventory levels for both of these products are still at or above the upper end of normal.

Yesterday afternoon the API released their weekly oil inventory report which is summarized in the following table along with my projections and comparisons to last year and the five-year average assuming the actual EIA data is in line with the projections. The API report was slightly biased to the bullish side. The API reported a surprise 2.3 million barrel decline in crude oil stocks as refinery utilization rates increased by 0.3% thus increasing refiner demand for crude oil. Most of the projections (including mine) were looking for a modest build in crude oil stocks and a small decline in refinery utilization rates. If the EIA data is in line with the API data it would bring the year over year deficit to over 10 million barrels while narrowing the overhang versus the five year average for the same week to 13.6 million barrels.

Projections

1/27/10

API

Current

Change from

Change from

Results

Projections

Last Year

5 Year

mmbls

vs. Proj.

vs. Proj.

Crude Oil

(2.3)

1.5

(6.8)

17.4

Gasoline

0.9

1.1

8.7

7.8

Distillate

(2.0)

(1.0)

12.2

24.0

Ref. Runs%

0.3%

-0.1%

-4.2%

-8.4%

Change Level

77.6%

78.3%

82.5%

86.6%

On the refined product front gasoline stocks in the API report came in within the expectations showing a build of about 900,000 barrels. If the EIA and API data are in line it would maintain the overhang versus last year and the five-year average a little below the 10 million barrels mark. With at least another month or more left to the normal, seasonal building period for gasoline I expect the building season will end with a surplus in double digits.

Distillate stocks built twice as much as expected in the API report. With last week’s weather in the main heating oil area of the US (Northeast) experiencing mostly above normal temperatures this is a surprise outcome. In last week’s EIA report about half of the decline in distillate stocks was attributable to diesel fuel, this may be the case again this week. We will watch this closely in the EIA report today. If diesel demand is in fact continuing to grow it is a good sign for the economy as well as a positive sign for the refiners as the overhang in distillate fuel that has been around for well over a year may finally be at the beginning stages of starting to narrow more quickly than it has been.

Tomorrow the EIA will release their latest snapshot of Nat Gas inventories. Nat Gas has been on the defensive for the last three days as the Feb Nymex contract expires today and the current forecast for a only a short bout of colder than normal weather has disappointed the market. Nat Gas prices are now closer to the lower end of its trading range as compared to where it was less than a week ago, even after a bullish EIA inventory report. At the moment most forecasts are calling for only a modest decline in stocks after relatively mild winter weather last week. The current consensus is calling for a net withdrawal of 130 to 150 BCF. If the actual data is within the expectations it would be less than last year’s decline of 184 BCF as well as the five-year average decline of 179 BCF for the same week. If this were the case the current inventories would once again move above the five year average after dropping marginally below the five year average last week.

Most markets remain in a downside correction with more money flowing out of riskier and potentially higher yielding asset classes. This pattern has been in place for about two week with many of the global equity markets approaching key technical support levels. If breached we could potentially see another 3% to 5% to the downside in equities which would result in further increases in the value of the U.S. dollar and thus a negative for oil and the broader commodity complex. The market is all about the sentiment and the investor/trader’s view of how the global economy will muddle its way through 2010. The one thing that is certain, the market is currently laden with uncertainly and thus the negative sentiment.

Remain cautious in all of your trading activities until more clarity emerges. My individual market views are detailed in the table at the beginning of the newsletter. My views on oil are the same, however, I have downgraded my view on Nat Gas back to cautiously Bearish as weather demand may be less of a factor in the short term.

Currently everything in the EMI Price Board is marginally higher except for Nat Gas and the US dollar.

Current Expected Trading Range

Expected Trading Range

1/27/10

Change

Low

High End

From

End Support

Resistance

7:59 AM

Yesterday

Mar WTI

$75.02

$0.31

$77.15

$82.50

Mar Brent

$73.54

$0.25

$76.25

$82.25

Feb HO

$1.9634

$0.0126

$2.0375

$2.1500

Feb RBOB

$1.9807

$0.0133

$2.0200

$2.1100

Feb NG

$5.416

($0.069)

$5.300

$5.850

Dow Futures

10,141

3

10,000

10,800

US Dollar Index

78.58

(0.030)

74.500

79.250

Euro/$

1.4077

(0.0008)

1.3750

1.5250

Yen/$

1.1169

0.0019

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