Weekly energy inventory report preview

“St Patrick’s Day is an enchanted time…a day to begin transforming winter’s dreams into summers magic.”

Adrienne Cook

EMI QuickView Short Term Market Overview

Impact on Energy Prices

Price Drivers

Crude

Gasoline

HO/Diesel

Nat Gas

Supply

N

N

N

CBr

Demand

N

N

N

N

Inventories

CBr

CBr

CBr

CBr

US Dollar

N

N

N

N

Global Equities

N

N

N

N

Geopolitics

CBu

CBu

CBu

CBu

Technicals

N

N

N

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

As expected the U.S. Central Bank held pat on interest rates and once again the Fed FOMC reiterated its stance that economic conditions are likely to warrant exceptionally low levels for the Fed Funds interest rate for an extended period of time. Most interpret extended period of time for another three to four months. This was the consensus opinion going into the meeting and it was exactly the result coming out of the meeting. Also as expected the reaction to the Fed announcement was mildly positive for U.S. equities as they were able to end the day with modest gains as they have done after previous Fed meeting with the same results. On the other hand the Commerce Department’s latest housing starts data (6% decline in February) dampened the equity bulls.

Although the Fed meeting results resulted in only a mild reaction in the equity markets the oil complex surged higher throughout most of the day in anticipation of the no change Fed results and held onto the gains even after the Fed announcement. On the day WTI regained all of Monday’s lost values and then a bit more rising by $1.90 per barrel or 2.4%. I am not sure why the reaction from the oil side was as strong as it turned out to be as the Fed is keeping a very low interest rate profile for an extended period of time since it views the economic recovery as moving very slowly, which would suggest that oil demand growth will also move very slowly. Again I am not sure where the excitement comes from. Helping oil prices also came into the oil pits from the declining dollar. On the day the U.S. dollar Index declined by about 0.8% while the euro appreciated by 0.6% as the EU worked out an emergency loan for Greece (if needed). As I mentioned weeks ago the likelihood of the EU letting Greece go under was a non-starter. The mechanism seems to now be in place if financial aid is required…although many in the EU are saying Greece is not likely to require aid. For the moment the dollar weakened on the news out of Europe as well as a result of what will be a low interest rate environment in the United States for at least the next three to six months.

Global equities were able to recover all of Monday’s losses and a bit more as shown in the EMI Global Equity Index table below. The Index is now up 0.4% for the week and 0.8% year to date. Currently seven out of 10 of the bourses in the Index are now in positive territory for the year with China, Hong Kong & Australia still in the red. The Australian economy is closely tied to China in the area of commodities and with the Chinese government likely to tighten further it could spread back to Australia insofar as demand for their commodities. In spite of the uncertainly concerning the upcoming elections in the UK and large sovereign debt concerns the UK is still leading the EMI Index with a year to date gain of 3.9%. The US is in third place with a gain of 2.5%. Equities are still providing support for oil prices but the upside momentum in the developed world markets are starting to show signs of some slowing.

EMI Global Equity Index

3/17/10

Change

Change

2010 YTD

2010

From

From

Change

7:38 PM

Yesterday

Yesterday %

%

US/Dow Jones

10,686

44

0.41%

2.5%

Can/S&P-TSX

12,089

81

0.67%

2.9%

Lon/FTSE

5,623

29

0.51%

3.9%

Paris/Cac 40

3,962

23

0.59%

0.7%

Germany/Dax

6,018

47

0.78%

1.0%

Japan/Nikkei

10,722

(30)

-0.28%

1.7%

HongKong/HangSeng

21,023

(56)

-0.27%

-3.9%

Aussie/SYDI

4,809

10

0.20%

-1.5%

China/Shanghai A

3,138

17

0.53%

-8.7%

Brazil/Bvspa

69,942

918

1.33%

2.0%

EMI Global Equity Index

14,801

108

0.4%

0.8%

On Tuesday afternoon the API released their latest snapshot of oil inventories as summarized in the table below along with the weekly projections and comparisons to last year and the five year average for the same week. The only surprise in the report was the large decline in gasoline stocks of about 3.7 million barrels. Both crude oil and distillate fuel came in within the expectations. The market reaction after the API report was muted as prices for the entire complex gradually increased overnight more on the back of a weaker dollar and firmer equity markets rather than on the API inventories. So for the moment we can categorize the API report as neutral as participants wait for this morning’s more widely followed EIA report.

Projections

3/17/10

API

Current

Change from

Change from

Results

Projections

Last Year

5 Year

mmbls

vs. Proj.

vs. Proj.

Crude Oil

0.4

0.5

(9.8)

16.5

Gasoline

(3.7)

0.1

13.4

6.9

Distillate

(0.8)

(0.6)

3.5

26.2

Ref. Runs%

0.0%

0.1%

-1.3%

-4.9%

Change Level

81.3%

80.8%

82.1%

85.7%

OPEC held their production meeting this morning in Vienna and as widely expected they decided to keep production levels unchanged. In addition there was no mention (so far) of the 48% compliance level as the official communiqué has not yet been released. With compliance levels below 50% OPEC is producing about 2 million barrels per day more oil than it was when they first agreed to cut production back in September of 2008. More interesting is the fact that the market has been absorbing the additional oil supply while rising from the low $30’s per barrel about a year ago to the current level of $82.45. That is really an amazing outcome for OPEC and one I am certain they never thought would be such a great result for them this early in the economic recovery cycle. In addition it is equally surprising that oil demand is beginning to show signs of growth at the current high price levels even in the lagging OECD world.

Tomorrow the EIA will release their latest snapshot of Nat Gas inventories. The industry has been paying little attention to the outcome of the weekly inventory reports for about the last month or so and have focused most of their market view on the ending of the winter heating season and the forecast for spring like weather going forward. In any event the early projections are calling for a net withdrawal of 25 to 40 BCF. If the actual data turns out to be within the expectations the inventory level will widen versus both last year and the five year average. Last year the net withdrawal was 42 BCF while the draw for the five year average for the same week was at 65 BCF. With spring coming this weekend the likelihood of inventories dropping below the five year average is becoming more remote by the week. With the six- to 10-day and eight- to 14-day weather forecast projecting growing areas of above normal temperatures and with the start of the shoulder period of Nat Gas it is highly unlikely that Nat Gas prices are going to be in a position to stage an upside rally anytime soon irrespective of the direction oil prices take. All signs continue to suggest Nat Gas prices will trade within the $4 to $5/mmbtu range I have been projecting for weeks.

Even though equities added modest gains on Tuesday and the gains have carried through in overnight trading I am still growing more bearish for equities for all of the reasons I discussed in yesterday’s newsletter. I also remain of the view that oil is becoming more overvalued by the day and as such the likelihood of a downside correction is increasing. With the momentum looking higher in the short term I would not be the least bit surprised if both equity and oil prices stretch higher before making any attempt at a downside correction. I expect prices to remain volatile in the short run with the market still susceptible to price reversals at any time.

I am maintaining my individual market views as detailed in the table at the beginning of the newsletter. Currently prices are firmer for oil and equities and lower for Nat Gas and the US dollar.

Current Expected Trading Range

Expected Trading Range

3/17/10

Change

Low

High End

From

End Support

Resistance

7:39 PM

Yesterday

Apr WTI

$82.43

$0.73

$81.25

$83.00

May Brent

$81.40

$0.87

$79.50

$81.75

Apr HO

$2.1290

$0.0147

$2.0750

$2.1400

Apr RBOB

$2.2954

$0.0204

$2.2300

$2.3200

Apr NG

$4.316

($0.031)

$4.155

$4.600

Dow Futures

10,712

26

10,400

10,800

US Dollar Index

79.8

(0.195)

78.850

81.000

Euro/$

1.3785

0.0028

1.3450

1.3775

Yen/$

1.1055

(0.0030)

1.0600

1.1600

Best regards

Dominick A. Chirichella

dchirichella@mailaec.com

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.

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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.

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