Energy inventory report preview for June 16

“As I grow older I pay less attention to what men say. I just watch what they do.”

Andrew Carnegie

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

CBu

CBu

CBu

CBu

Global Equities

CBu

CBu

CBu

CBu

10 Yr Treasuries

Cbr

Cbr

Cbr

CBr

Geopolitics

CBu

CBu

CBu

CBu

Technicals

N

N

N

CBu

Market Sentiment

N

N

N

N

Overall View

N

N

N

CBu

Bias

N

N

N

CBu

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

CBr - Cautiously Bearish

The stabilization/short covering rally continued strongly on Tuesday as equities rose while commodities and the Euro increased from the start of Asian trading to close in the US. Each region of the world traded higher than the one in the previous time zone with the US Dow adding over 200 points in value with WTI gaining 2.4% and Nat Gas surging another 3.7% on the day. Although this is still clearly a short covering rally it is starting to look and feel like some sidelined cash is beginning to slowly move back into risk asset classes if for nothing other than a bit of bottom picking. However, by and large the majority of the activity in all of the financial and commodity markets continues to be dominated by the institutional traders and funds with the retail audience still waiting cautiously in the background.

Following the lead from the US, Asian equity markets were mostly higher today bringing the string of higher closes to five days in a row. After being the leader for the global equity recovery Asia is now looking to the US economic growth as one of the main catalysts to keep the global recovery in motion. Nothing major emerged out of Asia today with China’s equity markets still closed for a public holiday. However, according to China International Capital Corp China may be exposed to significant job loses next year as the $585 billion dollar stimulus program comes to an end. This combined with the Chinese government continuing to intentionally throttle back the meteoritic economic growth of late adds additional concern over just how much of a leadership role the Chinese economy will have over the next year or so. The whole view of a soft landing may not turn out to be so soft.

European equity markets have followed Asia higher and are trading in positive territory for the sixth day in row as most of the economic news coming out of Europe this morning was positive. In addition there was no new bad or bearish news regarding the EU sovereign debt issues so far today. The EMI Global Equity Index (table shown below) is currently up by about 1.5% on the week dropping the year to date loss down to 5.2%. Canada has joined Germany in the year to date plus column with the US Dow on the cusp of turning positive for the year. China is the only bourse in the Index still showing double digit losses but should play a bit of catch-up with the rest of the world when trading in China resumes on Thursday. Overall the global equity markets are continuing to provide a positive backdrop to oil prices as well as the broader commodity complex.

EMI Global Equity Index

6/16/10

Change

Change

2010 YTD

2010

From

From

Change

8:03 AM

Yesterday

Yesterday %

%

US/Dow Jones

10,405

214

2.10%

-0.2%

Can/S&P-TSX

11,908

240

2.06%

1.4%

Lon/FTSE

5,232

15

0.28%

-3.3%

Paris/Cac 40

3,667

6

0.16%

-6.8%

Germany/Dax

6,183

8

0.13%

3.8%

Japan/Nikkei

10,067

179

1.81%

-4.5%

HongKong/HangSeng

20,062

10

0.05%

-8.3%

Aussie/SYDI

4,559

54

1.20%

-6.6%

China/Shanghai A

2,694

7

0.26%

-21.6%

Brazil/Bvspa

64,442

154

0.24%

-6.0%

EMI Global Equity Index

13,922

89

0.64%

-5.2%

The big driver for both equity and commodity markets over the last week or so has been the Euro. In fact the Euro has firmed strongly after dropping below the 1.20 level last week. This morning the Euro is retracing a bit after a report that the IMF, EU and US are putting together a credit line of about 250 million Euros for Spain...although the report was denied by both the EU and the Spanish government. In any event it has put a bit of pressure back on the Euro if for nothing other than reminding the market that the EU debt issues are still lingering around. As I mentioned yesterday any reversal in the Euro back into a defensive pattern will quickly result in a reversal in both equity and commodity prices. We are already seeing a bit of selling hit both the oil and US equity futures markets so far this morning.

Part of the selling in oil this morning is also related to the simply bearish API inventory report that was released late yesterday afternoon. The API data is summarized in the following table along with my projections and a comparison to last year and the five year average. Oil prices are currently lower by about 0.6% as the API reported a surprise build in crude oil stocks of about 600,000 barrels versus a projection for a draw of about 1.5 million barrels. Even though the API reported a big drop in imports (about 725,000 bpd) refiner demand for crude oil plummeted as utilization rates were decreased by 1.7% on the week.

Projections

6/16/10

API

Current

Change from

Change from

Results

Projections

Last Year

5 Year

mmbls

vs. Proj.

vs Proj.

Crude Oil

0.6

(1.5)

2.2

24.8

Gasoline

1.3

0.5

14.4

10.6

Distillate

2.1

1.0

5.8

30.4

Ref Change Level

-1.7%

0.2%

3.4%

-1.5%

Utilization %

85.1%

89.3%

85.9%

90.8%

Unfortunately for the refined products sector a decrease of 1.7% in the refinery utilization rate was not nearly enough to prevent the larger than expected inventory build for both gasoline and distillate fuel. The API reported a gasoline stock build of 1.3 million barrels versus a projection for a build of about 500,000 barrels. If the EIA data is in line with the API results that gasoline surplus versus last year will come in at over 15 million barrels while the five year overhang for the same week would be around 11.4 million barrels. As I have been saying for weeks there is little likelihood of any gasoline supply issues during the current summer driving season.

The distillate situation was even more negative than gasoline as the API reported a 2.1 million barrel build in distillate inventories or about twice as much as projected. If the EIA data is in sync with the API numbers the year over year overhang of distillate fuel will be close to 7 million barrels while the five year surplus for the same week would be a whopping 31.5 million barrels. The API report is suggesting that demand for both gasoline and economy sensitive diesel fuel may be tapering off after getting off to a good start this year. We will have to delve into the EIA data later this morning to get a clearer picture of the current fundamentals.

Nat Gas is continuing to trade in its new trading range even as prices are retracing a bit this morning. The weather disturbance that is sitting out in the eastern Atlantic now has a very low probability of turning into an organized storm. The NWS dropped the probability to just 10% this morning indicating there is a low chance of this turning into a tropical storm. So for the moment the markets and the Gulf are dodging the first bullet shot out of the barrel of the just starting hurricane season. Tomorrow the EIA will release their latest inventory snapshot. The market is expecting a net injection of about 85 BCF versus last year’s build of 113 BCF and the five year average injection level for the same week of 84 BCF. Overall I would categorize tomorrow’s inventory report as mostly neutral if the actual data is in line with the projections.

Nat Gas prices in the UK have also been increasing strongly on a combination of declining North Sea production and buyer demand as mainland Europe continues to diversify away from Russian gas. With prices moving strongly higher in the UK and with stocks not nearly as robust as in the US, incremental LNG is likely to find a more economical home in Europe versus the US. My views of Nat Gas going forward remains positive for all of the reasons I have been detailing for the last month or so.

My individual market views remain the same and are detailed in the table at the beginning of the newsletter. We remain in a headline market with a whole lot of skepticism emerging as to whether or not the current short covering rally will lead into a more stable upward trending market. I continue to recommend staying small and short term in all flat price trading.

Currently most asset classes in the EMI Price Board are lower.

Current Expected Trading Range

Expected Trading Range

6/16/10

Change

Low

High End

From

End Support

Resistance

8:04 AM

Yesterday

Jul WTI

$76.28

($0.66)

$69.25

$77.70

Aug Brent

$76.79

($0.31)

$72.00

$78.40

Jul HO

$2.0627

($0.0058)

$1.9450

$2.0800

Jul RBOB

$2.1007

($0.0208)

$1.9500

$2.1070

Jul NG

$5.134

($0.055)

$4.550

$5.000

10 YR Treasuries

120.95

0.23

118.00

122.00

Dow Futures

10,339

(52)

9,730

10,300

US Dollar Index

86.62

0.330

85.450

90.000

Euro/$

1.228

(0.0063)

1.1500

1.2200

Yen/$

1.0972

0.0009

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.

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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

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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