Energy inventory report preview

Quote of the Day

“Things are seldom what they seem.”

W.S. Gilbert

EMI QuickView Short Term Market Overview

Impact on Energy Prices

Price Drivers

Crude

Gasoline

HO/Diesel

Nat Gas

Supply

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Demand

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N

Inventories

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US Dollar

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Global Equities

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10 Yr Treasuries

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Geopolitics

CBu

CBu

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Technicals

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Market Sentiment

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N

Overall View

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Bias

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

CBr - Cautiously Bearish

Tuesday was a day absent any major market news resulting in a modest short covering rally in crude oil and a round of profit taking selling in the Nat Gas market. Financial markets had an interesting day with gains recorded during Asian hours, losses in Europe with gains once again returning during US trading hours. As has been the case throughout the downside move, yesterday was simply another short covering rally as weak shorts headed to the sidelines. We are still not seeing any signs of fresh buying emerging at this point in time. All of the markets traded in an erratic pattern on Tuesday as cash seems to still be moving to safe haven investments as Gold made another all time high (although it has since declined off of yesterday’s closing highs) suggesting that the fear and uncertainty that has been griping the market for the last month or so is far from over.

The markets are once getting moving into the mode of having priced in the vast majority of the negative news that has engulfed the market over the last week or so. Absent any new negative news coming from Europe or elsewhere could result in the market possibly beginning to enter a stabilization phase. This morning China reported a surge in exports and higher than estimated new loans suggesting that the global economic recovery may still be on track irrespective of what is happening in Europe. This appearance of stabilization has happened several times over the last few weeks or so but then another round of negative news emerges. Last week it was the one two punch of Hungry indicating is has debt problems coupled with a bearish US employment report. For the moment global equities have recovered some of their earlier losses. The EMI Global Equity Index (table shown below) has improved by about 0.7% over the last twenty-four hours cutting this week’s loss to just 0.6%. The year to date loss is now at 8.9% with five of the 10 bourses in the Index still in double digit loss territory for 2010. China remains in bear market territory with a year to date loss of over 21% but China’s equity markets have now risen for the second day in row. Global equity markets are currently neutral for oil prices over the last twenty four hours.

EMI Global Equity Index

6/9/10

Change

Change

2010 YTD

2010

From

From

Change

5:57 AM

Yesterday

Yesterday %

%

US/Dow Jones

9,940

123

1.26%

-4.7%

Can/S&P-TSX

11,517

12

0.11%

-1.9%

Lon/FTSE

5,022

(6)

-0.12%

-7.2%

Paris/Cac 40

3,386

6

0.18%

-14.0%

Germany/Dax

5,879

11

0.19%

-1.3%

Japan/Nikkei

9,439

(99)

-1.04%

-10.5%

HongKong/HangSeng

19,621

133

0.68%

-10.3%

Aussie/SYDI

4,385

4

0.09%

-10.2%

China/Shanghai A

2,709

73

2.77%

-21.2%

Brazil/Bvspa

61,856

673

1.10%

-9.8%

EMI Global Equity Index

13,375

93

0.70%

-8.9%

The oil market got a bit of good old fashioned fundamentals support after the EIA released their latest Short Term Energy Outlook. Support came in the form of the EIA leaving their oil demand growth projections for 2010 and 2011 at about the same level as in last month’s report (I view that as an overstated projection) while cutting forward supply projections on two fronts…impact from offshore drilling restrictions and the potential supply impact from the upcoming hurricane season. The main highlights from the EIA report follow:

· Based on the current Atlantic hurricane season outlook from the National Oceanic and Atmospheric Administration (NOAA), EIA estimates median outcomes for total shut-in production in the Federally-administered Gulf of Mexico during the upcoming hurricane season (June through November) of 26 million barrels of crude oil and 166 billion cubic feet (Bcf) of natural gas. Actual shut-ins are likely to differ significantly from this expectation depending on the number, track, and strength of hurricanes as the season progresses.

· This Outlook includes EIA's preliminary estimates of reductions in production resulting from a 6-month deepwater drilling moratorium announced by Secretary Salazar on May 27. The reductions in crude oil production resulting from the moratorium are estimated to average about 26,000 barrels per day (bbl/d) in the fourth quarter of 2010 and roughly 70,000 bbl/d in 2011. EIA will refine its moratorium impacts as additional information becomes available

· Global Crude Oil and Liquid Fuels Consumption. EIA projects that world oil consumption will grow by 1.5 million bbl/d in 2010 and 1.6 million bbl/d in 2011, about the same as in last month's Outlook. 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 500,000 bbl/d in 2010, 160,000 bbl/d lower than in last month's Outlook. A more pessimistic outlook for supply growth in Brazil and Central Asia is the principle source of the downward revision, though these two areas (along with the United States) still constitute the bulk of expected non-OPEC supply growth in 2010.

· OPEC Supply. EIA projects that OPEC, which did not change its production targets at its March meeting, will keep its crude oil production largely unchanged for the remainder of 2010.

· OECD Petroleum Inventories. EIA estimates that commercial oil inventories held in the Organization for Economic Cooperation and Development (OECD) stood at 2.70 billion barrels at the end of the first quarter of 2010, equivalent to about 58 days of forward cover, and roughly 102 million barrels more than the 5-year average for the corresponding time of year. Although OECD oil inventories are still projected to remain at the upper end of the historical range over the forecast period, they are falling as a result of a combination of higher oil consumption and OPEC production restraint.

· U.S. Natural Gas Consumption. Total natural gas consumption is about 0.5 Bcf/d higher in this forecast than in last month's Outlook, averaging 64.9 Bcf/d and 64.6 Bcf/d in 2010 and 2011, respectively.

OPEC will release their latest oil market report late this morning.

This morning the market will get the latest snapshot of oil inventories. Late yesterday afternoon the API released their report which turned out to be full of surprises and raising more questions than providing answers. The API results are summarized in the following table along with my projections and a comparison to last year and the five year average for the same week assuming the EIA results are in sync with the projections. The API reported a huge 4.5 million barrel decline in crude oil stocks or significantly more than any of the expectations. The confusing part of the crude oil number is the fact that imports increased over 700,000 barrels per day and refinery utilization rates rose only marginally and yet there was a huge decline in stocks.

Projections

6/9/10

API

Current

Change from

Change from

Results

Projections

Last Year

5 Year

mmbls

vs. Proj.

vs Proj.

Crude Oil

(4.5)

(0.8)

(3.5)

23.9

Gasoline

1.5

(0.5)

15.3

10.3

Distillate

3.0

1.0

4.0

30.5

Ref Change Level

0.2%

0.1%

1.3%

-2.7%

Utilization %

86.8%

87.6%

86.3%

90.3%

On the refined product front the API reported a surprise 1.5 million barrel build in gasoline stocks versus a forecast for a seasonal decline in stocks. In addition they showed a huge build in distillate fuel stocks of a little over 3 million barrels versus a projected seasonal build of about 1 million barrels. With a minimal increase in refinery runs, the API data suggest that implied demand has dropped off for both gasoline and distillate fuel this week. Interestingly the latest MasterCard SpendingPulse report showed a strong decline of 5.8% in gasoline demand based on spending on gasoline at the pump for the week ending June 4th. This morning’s EIA report will be dissected very closely to see if similar patterns show up in the EIA data.

Nat Gas declined about 2.2% on the day as a modest round of profit taking selling took place. Nat Gas prices have increased for four days in a row before declining on Tuesday. This was not a surprise event. Nat Gas is still above the range breakout level while all of the factors driving Nat Gas prices (detailed in yesterday’s newsletter) are all still in place. I expect Nat Gas prices to remain above the range breakout level (which is now considered a support level) for the foreseeable future. Nat Gas made its first attempt at breaching the upper resistance level of $5/mmbtu on Tuesday but failed. I expect additional attempts to break this new resistance level in the short term.

Tomorrow the EIA will release their latest Nat Gas inventory report. The current projections are on the bullish side as the market is expecting a build of around 90 BCF versus last year’s injection level of 109 BCF and a build of 95 BCF for the five year average for the same week. If the actual result is in sync with the projections it would be the second week in a row that Nat Gas stocks underperformed the historical data resulting in a modest narrowing of the existing overhang.

My individual market views remain the same and are detailed in the table at the beginning of the newsletter. Barring any new negative news (actually so far this morning the news out of China was positive) there is a decent chance that the remainder of the week could experience additional short covering rallies with a growing possibility that equities and commodities could end the week with gains versus last Friday’s settlement prices. If some follow through buying continues early next week it would suggest that we could possibly be heading into a consolidation pattern. I must warn that we have been in this position several times only to see selling resume after short lived short covering rallies. Cash preservation continues to be the optimal trade with caution the most important word in the trader’s vocabulary.

Currently prices are mixed.

Current Expected Trading Range

Expected Trading Range

6/9/10

Change

Low

High End

From

End Support

Resistance

5:57 AM

Yesterday

Jul WTI

$72.50

$0.51

$69.25

$77.70

Jul Brent

$72.50

$0.20

$72.00

$78.40

Jul HO

$1.9656

$0.0003

$1.9450

$2.0800

Jul RBOB

$1.9894

$0.0003

$1.9500

$2.1070

Jul NG

$4.779

($0.029)

$4.550

$5.000

10 YR Treasuries

121.69

(0.13)

118.00

122.00

Dow Futures

9,885

(29)

9,730

10,300

US Dollar Index

88.18

(0.293)

85.450

90.000

Euro/$

1.1962

0.0038

1.1500

1.2200

Yen/$

1.0946

(0.0007)

1.0800

1.1200

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. Quote of the Day “If going into the past was as easy as taking a step backward, we would never move forward.”Nicole Valenica

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.

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.

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