Energy inventory report preview

“Since light travels faster than sound, people appear bright until you hear them speak.”

Anonymous

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

Cbr

Cbr

Cbr

Cbr

Global Equities

N

N

N

N

10 Yr Treasuries

N

N

N

N

Geopolitics

CBu

CBu

CBu

CBu

Technicals

N

N

N

N

Market Sentiment

N

N

N

N

Overall View

N

N

N

N

Bias

N

N

N

N

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

CBr - Cautiously Bearish

Yesterday’s trading session turned out to be everything I thought it would be: high level of volatility, major price directional change, a show in Washington DC put on by the Senators quizzing Goldman and most importantly of all a further deterioration in the sovereign debt problems in the Eurozone as both Greece and Portugal had their ratings lowered again. The downgrading of both Greece and Portugal sent all of the global markets into a tailspin resulting in major losses in equities and most commodities with the U.S. dollar being the main recipient of cash flowing out of higher risk assets into a safe haven low risk parking area like the U.S. dollar. Yesterday was one of those days where anything with the word asset in it was up for sale with the very aggressive sellers lowering their price expectations enough to clear out some of their risk and push everything lower.

The single biggest concern overhanging the global equity markets is the idea that the Greece situation may spread to other areas within the Eurozone. This concern has raised the wall of worry significantly in just the last twenty four hours and is likely to linger until there is clear evidence that the situation in Greece has at least stabilized and Greece no longer is in jeopardy of defaulting. It is clear at the moment that investor/traders are not comfortable as the euro is trading near a one year low as many would now like to see the EU leadership expand the Greek bailout package beyond just Greece. However, the Greek bailout package is still under discussion by some member countries like Germany who has yet to approve the 45 billion euro package agreed upon weeks ago. The fact that Greece and several other EU countries have sovereign debt problems is more than enough to cause concern in the market place. However, the fact that the EU leadership has allowed this situation to linger for months with confusion still reigning suggests that uniformity in solving these types of problems is far from a given. It is quickly looking like the EU problem will likely gets worse before it gets better and this concern will continue to create a negative cloud over the European and wider global markets for the short to medium term.

As shown in the EMI Global Equity Index table below the negative cloud has spread globally. The EMI Index has lost over 2% of its value in the last twenty four hours resulting in the Index moving back into negative territory for 2010. The Index is now down 0.7% year to date. Brazil joined China and Hong Kong in the negative column as China’s Shanghai A shares are now down over 11% year to date. Brazil is expected to announce a relatively aggressive increase in interest rates today as they embark on a program of throttling back their economic expansion so as to mitigate the impact of inflation in the future. The country that has been underperforming for years and remains in a deflation mode. Japan has now topped the charts with a year to date gain of 6.3% while the Dow is a close second.

EMI Global Equity Index

4/28/10

Change

Change

2010 YTD

2010

From

From

Change

8:12 AM

Yesterday

Yesterday %

%

US/Dow Jones

10,992

(213)

-1.90%

5.4%

Can/S&P-TSX

12,147

(134)

-1.09%

3.4%

Lon/FTSE

5,604

(150)

-2.61%

3.5%

Paris/Cac 40

4,013

62

1.57%

2.0%

Germany/Dax

6,072

(87)

-1.41%

1.9%

Japan/Nikkei

11,213

47

0.42%

6.3%

HongKong/HangSeng

21,262

(325)

-1.51%

-2.8%

Aussie/SYDI

4,913

(0)

0.00%

0.6%

China/Shanghai A

3,048

(64)

-2.07%

-11.3%

Brazil/Bvspa

66,511

(2,361)

-3.43%

-3.0%

EMI Global Equity Index

14,578

(323)

-2.17%

-0.7%

The main driver offsetting the sovereign debt issues is a view that interest rates will remain at atypically low rates for an extended period of time in places like Japan and the United States. In fact this afternoon at 2:15 PM, EST the US Fed will release the communiqué of their latest FOMC meeting. With unemployment still at record high levels and with the chaos evolving over the EU sovereign debt problems I expect the Fed will keep everything status quo in their communiqué, that is they will likely continue to say they are keeping interest rates at low levels for an extended period of time. If the Fed breaks rank today and gives any indication that an increase in short term interest is imminent there will be a huge sell-off in global equities and most all commodities. I do not expect that to happen today.

With absolutely no upside support coming from either the direction of the U.S. dollar or the global equity markets oil investor/traders are once again moving their focus to the current fundamentals, which are bearish and are likely to remain bearish after this morning’s EIA oil inventory snapshot to be released at 10:30 AM, EST. The following table summarizes yesterday afternoon’s API data 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 data was completely out of line with most all of the expectations, including mine. They reported a huge build in crude oil inventories of about 5.3 million barrels on the back of a 0.4% decline in refinery utilization rates offset a bit by a decline in crude oil imports. If the EIA data is in line with the API report it would lower the year over year deficit to about 13.5 million barrels while widening the overhang versus the five-year average to over 20 million barrels. Although the API data has been consistently out of sync with the EIA data for the last three weeks in a row the fact that the crude oil forward curve contango has widened significantly making oil more economically interesting to store could be a driving factor behind the large API crude oil build and one that could possibly show up in the EIA report. As I said in yesterday’s newsletter this is an area where surprises could show up if the trading community quickly becomes active in opportunistically entering into new crude oil storage deals.

Projections

4/28/10

API

Current

Change from

Change from

Results

Projections

Last Year

5 Year

mmbls

vs. Proj.

vs. Proj.

Crude Oil

5.3

0.5

(18.3)

16.1

Gasoline

(0.7)

0.5

12.8

19.3

Distillate

(1.4)

1.0

5.8

32.0

Ref. Runs%

-0.4%

0.2%

3.4%

-1.2%

Change Level

84.7%

86.1%

82.7%

87.3%

Refined products declined across the board in the API report basis the 0.4% decline in refinery runs as well as a likely decline in implied demand. In fact MasterCard reported a decline in gasoline consumption last week resulting in the lowest demand level in 10 weeks. As discussed in yesterday’s newsletter implied demand seems to be on the defensive for both gasoline and distillate fuel. As usual one needs to be extremely cautious with the API data as it has not been in sync with the EIA data over the last month or so.

Today the May Nat Gas contract expires which should add a bit of volatility to the market. In spite of the massive downward moves in equities and in oil on Tuesday Nat Gas prices traded in a relatively narrow trading range losing only 1.1% of its value (for reference oil declined over 2%). Nat Gas remains in the upper end of the consolidation range as I have been predicating it would. Tomorrow the EIA will release the latest snapshot of inventories which are expected to show another above average build of between 70 to 75 BCF. The current fundamentals remain bearish but this view has been well priced into the market already. I remain of the same view for Nat Gas in the short to medium term: neutral and expecting trading to remain within the confines of the consolidation range it has been in for weeks.

Oil is another story as it is clearly into a corrective trading pattern having declined strongly over the last several days and now is over $5/bbl below the highs made in early April. WTI is now trading back in the trading range it was in for most of 2010. Until the equity markets move back to higher ground oil investor/traders will continue to focus on the nearby fundamentals, which remain bearish. WTI has been falling like a stone compared to everything else in the complex and as such the WTI/Brent spread widened in our favor very strongly on Tuesday while the crack spreads widened strongly more as a result of WTI falling rather than any structural change in the HO & RBOB. Unless the EIA data reports similar declines in refined product inventories and a modest decline in utilization rates the cracks should retrace back down to levels seen earlier in the week.

All eyes are on the direction of the equity markets insofar as guidance for the oil and broader commodity markets. On the positive side corporate earnings have quietly continued to beat analyst expectations which are a positive for the equity complex. In addition the view that the U.S. Fed will leave all status quo today will be a positive for the markets. However, the cloud over Europe is of major concern and will continue to create an atmosphere of fear if the sovereign debt issues spread beyond the borders of Greece. Uncertainty and caution will continue to be the keywords in describing all of the trading markets we follow.

One comment on what I believe was more political stage than substance: Goldman SACHS hearings yesterday. I watched the vast majority of the hearing which lasted over 10 hours and I heard nothing that sounded like GS did anything unusual nor seemingly illegal in the normal world of trading and market making. It appeared obvious to me that the Senators on the committee either did not understand the whole business of market making and providing liquidity to the market or simply chose not to understand it. It was not only obvious to me that nothing seemed strange it was obvious to the overall market as GS stock actually increased in value on a day when markets around the world were pummeled. As I said yesterday the GS hearings were going to be entertainment and from that perspective they did not disappoint.

My current views are detailed in the table at the beginning of the newsletter. Expect another day of high volatility with the potential for price directional changes at any time, especially after the EIA inventory release this morning and the release of the FOMC communiqué this afternoon.

Currently prices are mixed.

Current Expected Trading Range

Expected Trading Range

4/28/10

Change

Low

High End

From

End Support

Resistance

8:13 AM

Yesterday

June WTI

$82.68

$0.24

$82.50

$87.00

Jun Brent

$85.59

($0.19)

$82.35

$86.75

May HO

$2.2342

$0.0039

$2.1850

$2.2850

May RBOB

$2.3328

$0.0060

$2.2600

$2.3700

May NG

$4.209

($0.007)

$3.450

$4.320

10 YR Treasuries

117.31

(0.34)

114.11

116.59

Dow Futures

10,993

38

10,600

11,360

US Dollar Index

82.33

0.020

79.920

81.150

Euro/$

1.3231

0.0022

1.3450

1.3800

Yen/$

1.0638

(0.0106)

1.0610

1.0810

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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