Energy inventory report preview for June 23

“It is better to understand a little than to misunderstand a lot.”

Anatole France

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

N

N

N

N

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

First the good news from Tuesday, the markets did not experience any price direction reversals. Now the bad news, prices for just about all asset classes just continued to sell-off as the day marched on. The selling moved around the globe with most Asian bourses declining the most in the last several weeks with selling continuing in Europe. The Nymex July WTI contract expired on a weak note while the Aug. contract started its life as the spot month being immediately impacted by a bearish API inventory report. Most of the economic data released yesterday was also bearish with the markets in the US unable to overcome slumping US housing sales as well as retails sales and a regional manufacturing index that suggested the US economy is pointing to a slowdown.

Over the last month or so the US economic recovery has been one of the bright spots amidst all of the uncertainty surrounding the global economy. As fear and uncertainty emerged from the EU sovereign debt issues as well as the potential for emerging market countries to begin to tighten their monetary policies the steady growth of the US economy was the main driver in the global equities markets. The steady growth of the US economy looks a lot more uncertain today than it did just a month or so ago. Job growth is stagnant along with housing, manufacturing and many other sectors of the US economy as measured by the various economic indicators that have been released over the last several weeks. There is once again talk coming from many economist over the potential for a double dip recession in the US. The market sentiment has moved to a negative bias.

This afternoon we will hear what the US Fed thinks of the economy and what if any changes they are planning to make regarding monetary policy when they release the communiqué of this week’s FOMC meeting. Some participants are expecting the Fed to possibly suggest the US economy is slowing down which would be a less optimistic report than after last month’s meeting. There are huge issues facing the US economy from the lack of solid and steady jobs creation to significant tax increases coming at the start of 2011 as well as what the financial regulation bill will look like after all of the negotiating going on in Washington at the moment are concluded. The single biggest issues that markets have the most difficulty in digesting or simply absorbing is uncertainty...and there is plenty of uncertainty surrounding the US economy as well as the broader global markets.

On top of all of the uncertainty bubbling up in the US, this weekend global leaders of G20 countries will gather in Toronto with an economic agenda that as of this writing does not seem to be in complete harmony, which is adding another layer of uncertainty. There are splits among the various leaders in the area of a banking tax as well as the timing of the withdrawal of stimulus funds versus austerity programs. The EU is widely in favor of a banking tax and is in the very early stages of implementing austerity programs while the US is still pushing to spend more and worry about its huge deficit at some point down the road. Between now and the weekend I am certain they will all agree to something so they can all come out of the meeting boasting of some form of political success. They will have a joint communiqué although it may be watered down. In the end, this meeting will conclude with the level of uncertainty remaining as high as it is at the moment.

The uncertainty is reflected in how the global equity markets have been trading so far this week as shown in the EMI Global Equity Index table below. Over the last twenty-four hours the Index has lost another 0.5% and is currently only showing a 0.4% gain for the week. In the last twenty-four hours, Hong Kong was the only bourse to add value. The Index is still down by 4.6% year to date with the US moving back into the negative column leaving just Germany and Canada with modest gains for the year. So far the Index has recovered about half of the losses from the down trend the markets have been since April but the simple fact that most bourses around the world are still showing losses for 2010 is a result of the dwindling confidence of investor/traders as to the pace of the global economic recovery. At the moment equities remain neutral to negative for oil prices as well as the broader commodity complex.

EMI Global Equity Index

6/23/10

Change

Change

2010 YTD

2010

From

From

Change

7:45 AM

Yesterday

Yesterday %

%

US/Dow Jones

10,294

(149)

-1.43%

-1.3%

Can/S&P-TSX

11,798

(138)

-1.16%

0.4%

Lon/FTSE

5,216

(31)

-0.59%

-3.6%

Paris/Cac 40

3,676

(29)

-0.78%

-6.6%

Germany/Dax

6,243

(25)

-0.40%

4.8%

Japan/Nikkei

9,924

(189)

-1.87%

-5.9%

HongKong/HangSeng

20,857

38

0.18%

-4.6%

Aussie/SYDI

4,486

(72)

-1.58%

-8.1%

China/Shanghai A

2,693

(20)

-0.74%

-21.7%

Brazil/Bvspa

64,811

(18)

-0.03%

-5.5%

EMI Global Equity Index

14,000

(63)

-0.45%

-4.6%

The API released their weekly snapshot of oil inventories late yesterday afternoon and in one word it was bearish. The API data is summarized in the following table along with my projections and a comparison to last year and the five year average assuming today’s EIA results are in sync with the projections. The API reported a huge 3.7 million barrel build in crude oil stocks versus an expectation for a draw of around 1 million barrels. If the EIA data is in line with the API data the surplus versus last year would grow to 13 million barrels while the overhang versus the five year average for the same week would surge to over 30 million barrels. Crude oil inventory was impacted by a significant increase in imports of 1.3 million barrels per day which offset the 2.1% increase in the refinery utilization rate.

Projections

6/23/10

API

Current

Change from

Change from

Results

Projections

Last Year

5 Year

mmbls

vs. Proj.

vs Proj.

Crude Oil

3.7

(1.0)

8.3

26.2

Gasoline

0.8

(0.5)

8.9

7.8

Distillate

1.0

1.5

6.0

30.6

Ref Change Level

2.1%

0.3%

1.1%

-2.1%

Utilization %

87.2%

88.2%

87.1%

90.3%

Refined product inventories both increased with gasoline building by about 800,000 barrels compared to projections calling for a decline in stocks of about 500,000 barrels. Implied gasoline demand may be starting to flatten out even as we are now at the height of the summer driving season in the US. About the only bright spot (if you can call it a bright spot) in the API report was the smaller that expected build in distillate fuel stocks of 1 million barrels versus a projection for a build of about 1.5 million barrels. That said distillate inventories remain at above normal levels when compared to either last year or the five year average for the same week.

Needless to say the market has reacted negatively to the API report with oil prices trading in negative territory since the report was released, even though the Euro is on the defensive and the US dollar is declining, both positive drivers for oil prices. Oil prices are not off a great deal partially due to the direction of the Euro and the dollar as well as the high level of inconsistency in the API results as most participants sit and wait unit the EIA data will be released this morning before committing money to the market.

Nat Gas prices were hit with another round of selling on Tuesday as yet another unorganized storm in the Caribbean saw its probability of turning into a potential hurricane downgraded from a 40% chance to a 20% chance. In my view the Nat Gas market has been over reacting to anything that looks like it even has the potential to turn into a storm that could impact supply only to be quickly sold on the first sign that it may not materialize. The market is very nervous as to the potential outcome of the current hurricane season. Participants are being inundated with forecasts that are projecting an overactive hurricane season. Just yesterday WSI (a private weather forecaster) followed Accuweather in increasing their projection of named storms for this year.

There will be ample time for all participants to either price protect themselves, join the upward trend when a real storm actually develops or to say one that has a very high probability of evolving into a hurricane that may actually wind up in the oil and Nat Gas rich Gulf of Mexico. The way the market has been trading of late I would caution anyone from jumping on the hurricane bandwagon trade until a weather pattern has a much higher probability (greater than the 30 or 40% level we have seen so far) of turning into a storm. For interest the current weather pattern in the Caribbean now has a low (20%) chance of turning into a storm in the next 48 hours...interesting but not something that is likely to have any impact on oil or Nat Gas supply.

Nat Gas continues to trade in the wide trading range that I have been projecting and all signs suggest to me that prices will remain in this pattern for the foreseeable future. Tomorrow the EIA will release the latest inventory snapshot. I (projecting an injection level of about 77 BCF) and most of the market are expecting a lower injection level compared to last year as well as the five year average. My 77 BCF projection compares to last year’s injection level of 97 BCF and 85 BCF for the five year average for the same week. If the actual data is in line with the projections the inventory overhang will narrow a bit further this week.

My individual market views are detailed in the table at the beginning of the newsletter. My views remain the same for today as headlines and macro economic data will continue to dominate the market sentiment for both the financial and commodity markets. Fear and uncertainty will continue to be the dominant market emotions.

Currently prices are mixed.

Current Expected Trading Range

Expected Trading Range

6/23/10

Change

Low

High End

From

End Support

Resistance

7:46 AM

Yesterday

Aug WTI

$77.59

($0.26)

$70.00

$80.00

Aug Brent

$77.90

($0.14)

$72.00

$78.40

Jul HO

$2.1075

($0.0054)

$2.0000

$2.1500

Jul RBOB

$2.1280

($0.0055)

$2.0000

$2.1400

Jul NG

$4.785

$0.029

$4.550

$5.000

10 YR Treasuries

120.83

(0.08)

118.00

122.00

Dow Futures

10,275

42

9,730

10,300

US Dollar Index

86.315

(0.093)

85.450

90.000

Euro/$

1.2275

0.0002

1.1500

1.2200

Yen/$

1.1097

0.0033

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.

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.

Comments
comments powered by Disqus