Energy inventory report preview

“Everyone who got where he is had to begin where he was.”

Robert Louis Stevenson

EMI QuickView Short Term Market Overview

Impact on Energy Prices

Price Drivers

Crude

Gasoline

HO/Diesel

Nat Gas

Supply

Cbr

Cbr

Cbr

CBr

Demand

N

N

N

N

Inventories

Cbr

Cbr

Cbr

CBr

US Dollar

Cbr

Cbr

Cbr

CBr

Global Equities

Cbr

Cbr

Cbr

Cbr

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

Most markets were relatively calm on Tuesday after several days of near chaos. The reality of the trillion dollar EU lending program is starting to be digested by the market along with the ramifications of the QE program by the European Central Bank. As expected most investor/traders are viewing the current stabilization program to be a stop gap measure and one that will not solve the sovereign debt problems in the EU rather it will only buy time and hope the economies of the individual countries can recover enough to be in a position to pay back the debt in a reasonable period of time. On the day most equity markets relinquished some of Monday’s meteoric gains while the euro moved back on the defensive as gold made an all time high. Movement of cash into gold is a safe haven trade and one that simply says investor/traders are not very confident there will be a soft landing from the evolving debt problems in Europe and possibly elsewhere like the US.

The chaos is not completely over as late in the day it seemed like the Conservative party in the UK is developing a coalition government with the Liberal Democratic Party and David Cameron will be the new Prime Minister after Gordon Brown resigned. Debt reduction and budget cuts will likely be on the top of the list of the new government. Currency markets are still in a realignment pattern as are many of the global equity markets. Inflation is quickly creeping up in China and further tightening will likely occur sooner than later. All in all I view what has bubbled up to the surface over the last few weeks as events that can impact the rate of growth of the global economic recovery. The EU economy will slow as will the UK economy as the new leadership starts to cut spending. Debt problems are emerging in the US at the Federal level as well as in many large states like California where the governor of that state is set to make drastic cuts to balance its budget. The big growth engines will also be slowing as the fight against inflation ratchets up. This all suggests to me that global oil consumption is likely to underperform versus the current forecasts. Yesterday OPEC’s forecast kept their demand growth projections pretty much at the same level as in the previous months report while the EIA actually showed an increase in oil demand growth for both 2010 and 2011. The highlights of the EIA report are shown below:

Crude Oil and Liquid Fuels Overview. EIA's assessment of global economic growth, global oil demand, and world oil prices are all slightly higher than in last month's Outlook. Expectation of a somewhat more robust global economic recovery supports the updated price forecast, particularly if the Organization of the Petroleum Exporting Countries (OPEC) continues to remain satisfied with its supply targets as global oil consumption continues to grow. The most important downside risk to this forecast is lower-than-expected economic growth.

Global Crude Oil and Liquid Fuels Consumption. EIA projects that world oil consumption will grow by 1.6 million barrels per day (bbl/d) in 2010, slightly higher than in last month's Outlook, and also by 1.6 million bbl/d in 2011. This revision for 2010 follows an update of EIA's assumptions for growth in world real oil-consumption-weighted GDP, which is now assumed to rise on average about 3.6% per year over the forecast period. The growth in oil consumption is expected to be largely concentrated in the Asia-Pacific and Middle East regions

Non-OPEC Supply. Non-OPEC supply is projected to increase by 660,000 bbl/d in 2010, about 60,000 bbl/d more than in last month's Outlook. Nearly all of the revision in 2010 non-OPEC supply growth is due to higher expected production of natural gas liquids and fuel ethanol in the United States.

OPEC Supply. EIA projects that OPEC will only gradually increase its crude oil production over the forecast period, largely in line with the decision at its March meeting to leave its production targets unchanged.

OECD Petroleum Inventories. EIA estimates that commercial oil inventories held in the Organization for Economic Cooperation and Development (OECD) countries stood at 2.70 billion barrels at the end of the first quarter of 2010. This is equivalent to about 58 days of forward cover, and is roughly 95 million barrels more than the five-year average for the corresponding time of year

U.S. Natural Gas Consumption. EIA expects total natural gas consumption to increase by 3% to 64.4 billion cubic feet per day (Bcf/d) in 2010 and decline by 0.4% in 2011. Consumption growth in 2010 is led by the industrial and electric power sectors.

U.S. Natural Gas Production and Imports. EIA expects total marketed natural gas production to increase by 0.8 Bcf/d (1.3%) to 60.7 Bcf/d in 2010 and to decline by 0.3 Bcf/d (0.5%) in 2011. This production forecast is lower than last month's Outlook by 0.1 and 0.3 Bcf/d in 2010 and 2011, respectively.

The IEA just released their latest monthly oil market report which actually showed a downward adjustment in oil demand of 190,000 bpd.

Global oil demand is revised down by 190 kb/d on average for 2009 and 2010, equating to 84.8 mb/d (-1.2 mb/d year-on-year) and 86.4 mb/d (+1.6 mb/d) respectively. Revisions stem largely from changes to non-OECD historical baseline data, as slightly higher GDP prognoses from the IMF are counterbalanced by a higher price assumption.

OPEC crude output rose by 40 kb/d in April, to 29.03 mb/d, sustaining a trend of largely stable supply since mid-2009. The ‘call on OPEC crude and stock change’ for 2010 is cut by 0.4 mb/d to 28.7 mb/d on lower demand estimates and higher non-OPEC supply. The ‘call’ peaks in 3Q10 at 29.4 mb/d but recedes in 4Q10 on rising non-OPEC supplies.

Non-OPEC oil supply fell to 52.4 mb/d in April, on seasonal output curbs. The 2010 forecast is revised up 0.2 mb/d to 52.3 mb/d on higher expectations for the US, Canada and China. Growth in 2010 of 0.8 mb/d is the strongest since 2004 and matches that for OPEC NGLs. The Deepwater Horizon drilling accident in the US Gulf has led to a major crude spill. Regional production is unaffected but the incident may lead to tighter safety measures and delay further offshore leasing.

OECD industry stocks rose by 7.3 mb to 2 709 mb in March, with divergent trends in crude and products across all OECD regions. Stock cover in days of forward demand rose to 60.5 days by end-March but stood 1.1 days below March 2009 levels. Preliminary April data show a sharp 47.4 mb build in onshore stocks and higher floating storage.

The 2Q10 global refinery crude run estimate is raised to 73.3 mb/d, up 450 kb/d from 1Q10 and 370 kb/d higher than in last month’s report. Sharply higher US crude runs in April, due to improved complex margins and a quick exit from seasonal turnarounds, combine with stronger expectations for Chinese throughputs.

The API inventories were mixed as summarized in the following table. Crude oil stocks increased about 400,000 barrels as imports declined strongly by about 1.4 million barrels per day more than offsetting reduced refiner demand for crude oil as utilization rates fell by 2.5%. The reduced run rates certainly impacted refined product inventories in the API report. Gasoline stocks declined for the first time in weeks by 900,000 barrels while distillate fuel stocks built by only about 100,000 barrels. Of note the API reported a big build in crude oil stocks in both PADD 2 and Cushing putting further pressure on the WTI/Brent spread.

Projections

5/12/10

API

Current

Change from

Change from

Results

Projections

Last Year

5 Year

mmbls

vs. Proj.

vs Proj.

Crude Oil

0.4

1.0

(13.7)

17.8

Gasoline

(0.9)

0.8

13.3

18.4

Distillate

0.1

1.0

6.9

34.5

Ref Change Level

-2.5%

0.5%

4.8%

1.8%

Utilization %

84.9%

90.1%

85.3%

88.3%

The API data is certainly a step in the right direction if the industry expects to mitigate what I view as a huge surplus of refined products and crude oil. With the forward curve contango still economically viable for both crude oil and distillate this week’s API data may be more of an anomaly rather than the start of a new trend.

This morning’s EIA repot will be the main driver. If it is in sync with the API report it will certainly be viewed as a bullish sign and one that could get some buying returning to the market. My individual market views remain the same for today and are detailed in the table at the beginning of the newsletter. Continue to expect erratic trading at times with a high probability for price reversals at anytime. On a positive note the EU statistic office just reported that the 16 country euro zone GDP grew at a modest 0.2% in the first quarter of 2010 versus no growth or flat in the previous quarter in spite of the problems surrounding Greece.

Currently prices are trading either side of unchanged.

Current Expected Trading Range

Expected Trading Range

5/12/10

Change

Low

High End

From

End Support

Resistance

5:38 AM

Yesterday

June WTI

$76.40

$0.03

$84.00

$87.60

Jun Brent

$81.05

$0.56

$85.50

$88.25

June HO

$2.1581

$0.0180

$2.2200

$2.3600

June RBOB

$2.2051

$0.0099

$2.3200

$2.4400

June NG

$4.153

$0.022

$3.870

$4.410

10 YR Treasuries

119.08

0.06

117.00

118.50

Dow Futures

10,717

8

10,900

11,200

US Dollar Index

84.545

(0.068)

81.700

82.900

Euro/$

1.2704

0.0008

1.3100

1.3450

Yen/$

1.0771

(0.0010)

1.0600

1.0800

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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