Quote of the Day
“You are never too old to set another goal or to dream a new dream.”
Les Brown
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EMI QuickView Short Term Market Overview | ||||
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Impact on Energy Prices | ||||
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Price Drivers |
Crude |
Gasoline |
HO/Diesel |
Nat Gas |
|
Supply |
Cbr |
Cbr |
Cbr |
CBr |
|
Demand |
Cbr |
Cbr |
Cbr |
N |
|
Inventories |
Cbr |
Cbr |
Cbr |
CBr |
|
US Dollar |
CBu |
CBu |
CBu |
CBu |
|
Global Equities |
CBu |
CBu |
CBu |
CBu |
|
10 Yr Treasuries |
N |
N |
N |
N |
|
Geopolitics |
CBu |
CBu |
CBu |
CBu |
|
Technicals |
N |
N |
N |
CBr |
|
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 | ||||
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CBr - Cautiously Bearish |
The Nymex October WTI contract spent its last day of trading on Tuesday in negative territory even as the U.S. dollar declined to a six week low and equities hovered near the unchanged level. In overnight trading the dollar has continued to weaken and now that the November contract is the spot month, it has reversed course and recovered some of yesterday’s losses. The oil market is back to looking for a catalyst for its next move. On the economic front the U.S. Fed signaled yesterday after their latest FOMC meeting that they would be willing to ease monetary policy further to spur growth and support prices while refraining today from expanding its holdings of securities. “The FOMC will continue to monitor the economic outlook and financial developments and is prepared to provide additional accommodation if needed to support the economic recovery and to return inflation, over time, to levels consistent with its mandate”.
The Fed said the pace of recovery and job growth has slowed in recent months. The committee also said “measures of underlying inflation are currently at levels somewhat below those the committee judges most consistent, over the longer run, with its mandate to promote maximum employment and price stability. What this all suggests to me is the Fed is still as concerned as they were after last month’s meeting and are not yet ready to open the Quantitative Easing spigots, but they are in the ready mode. To a certain extent their statement is a bit bearish as it validates the fact that the US economy is still likely to grow only very slowly and thus it is mildly bearish for oil especially from the perspective of an economy sensitive to diesel demand.
This morning the minutes of the last UK Central Bank meeting were released and, much like the US Fed, their view was less than enthusiastic as the minutes indicated they might have to engage in additional stimulus as UK economic growth slows. If so they would be in the same mode as the US Fed of entering into yet another round of Quantitative Easing. The signals coming from just about every corner of the developed world still suggests that the economic recovery will be slow at best resulting in oil demand growth continuing too struggle to return to pre-recession levels.
The aforementioned sentiment continues to permeate throughout the financial markets as evidenced by the EMI Global Equity Index (table shown below). The Index lost about 0.5% over the last 24 hours widening the year to date loss to 1.1%. However, the Index is still showing a small gain for the week of 0.6% held up mostly by modest gains overnight in Asia. On the other hand all of the major bourses in Europe, as well as US equity futures are currently in negative territory. The best description of the financial market sentiment is still one of uncertainty and concern over the slow pace of the recovery which raises the potential for the economy to slip back into another bout of recession. For this morning the equity markets are mostly neutral for oil prices with the declining US dollar providing all of the support for oil…at least until the EIA releases their oil inventory snapshot later this morning.
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EMI Global Equity Index | ||||
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9/22/10 |
Change |
Change |
2010 YTD | |
|
2010 |
From |
From |
Change | |
|
5:54 AM |
Yesterday |
Yesterday % |
% | |
|
US/Dow Jones |
10,761 |
7 |
0.07% |
3.2% |
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Can/S&P-TSX |
12,171 |
(64) |
-0.52% |
3.6% |
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Lon/FTSE |
5,549 |
(28) |
-0.50% |
2.5% |
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Paris/Cac 40 |
3,749 |
(35) |
-0.92% |
-4.8% |
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Germany/Dax |
6,223 |
(53) |
-0.84% |
4.5% |
|
Japan/Nikkei |
9,566 |
(36) |
-0.37% |
-9.3% |
|
HongKong/HangSeng |
22,048 |
45 |
0.20% |
0.8% |
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Aussie/SYDI |
4,625 |
8 |
0.17% |
-5.3% |
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China/Shanghai A |
2,714 |
3 |
0.11% |
-21.0% |
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Brazil/Bvspa |
67,719 |
(471) |
-0.69% |
-1.3% |
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EMI Global Equity Index |
14,512 |
(62) |
-0.43% |
-1.1% |
Yesterday afternoon the API released yet another bearish inventory report showing across the board build versus expectations for across the board declines. The results of the API report are summarized in the following table along with my projections for this week’s inventory report and a comparison to last year as well as the five-year average for the same week. So far the market has pretty much discounted the API report as oil prices are firmer across the board. However, even though the API data is out of sync with the EIA data it does raise a caution flag as to the divergence from most of the industry expectations.
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Projections |
9/22/10 | |||
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API |
Current |
Change from |
Change from | |
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Results |
Projections |
Last Year |
5 Year | |
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mmbls |
vs. Proj. |
vs Proj. | ||
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Crude Oil |
2.2 |
(1.5) |
20.3 |
40.0 |
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Gasoline |
2.4 |
(0.3) |
11.1 |
26.9 |
|
Distillate |
2.5 |
0.4 |
4.2 |
31.3 |
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Ref Change Level |
-0.2% |
-0.3% |
1.7% |
2.6% |
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Utilization % |
85.4% |
87.3% |
85.6% |
84.7% |
I am expecting a mixed EIA report with draws in both crude oil and gasoline and a modest build in distillate fuel. If the actuals are in sync with my projections for a crude oil draw of 1.5 million barrels it will be the third week in a row of inventory declines. It would be a bullish outcome for the week with the year over year surplus narrowing to 20.3 million barrels while the overhang versus the five-year average for the same week will also narrow modestly to 40 million barrels.
With runs expected to decline and demand slowly waning, I am expecting only a modest decline in gasoline stocks and a small build in distillate fuel. Gasoline stocks are expected to decline by about 300,000 barrels as refiners start to wind down from the higher demand summer driving season and turn their attention to the upcoming winter heating season. This week the gasoline year-over-year overhang is projected to narrow to around 11.1 million barrels while the surplus versus the five-year average for the same week will be at 26.9 million barrels. The industry has to work off the surplus that has remained since the end of the driving season.
Distillate fuel likely built by about 400,000 barrels as economy sensitive diesel fuel implied demand continues to decrease and follow the slowly developing downtrend that has been in place since about May of this year or around the same time the US economy began to slow down. Implied distillate demand peaked in mid-May at a tad over 4 million barrels per day and has declined about 10% since then. I would categorize this week’s oil inventory snapshot as biased to the bullish side if the actual EIA data is in sync with the projections. If the EIA data is more in line with the API report the market is likely to react very negatively...trading could be very volatile shortly after the data is released this morning.
The Caribbean storm that is evolving much like Hurricane Karl evolved last week remains a concern. This storm is located in the southeastern Caribbean Sea and is associated with a vigorous tropical wave moving westward at about 15 mph. The disturbance has become better defined with a wind gust of almost 50 mph over St. Lucia on Tuesday. There is currently a medium chance or 50% of this system becoming tropical cyclone over the next 48 hours. Although there is still not a projected path for this waves, this is a potential storm that could possibly wind up in the Gulf…we will need to watch this one closely over the next day or so.
The pattern that formed over the weekend off of West Africa is now Tropical Storm Lisa and is currently expected to remain a Tropical Storm over the next few days. However, Lisa’s projected path has changed over the last few days and is currently pointing more on a track that could wind up toward the Gulf of Mexico with no current sign that it will turn into the northern Atlantic as the last several storms have done. The current projected path of Lisa is shown in the following graphic. At the moment the tropics are starting to become a bit more threatening at least from the view of market participants which view these two aforementioned weather patterns as looking like they may have a higher probability of moving into harm’s way of oil and Nat Gas production than most of the previous storms we have experienced so far this season. Over the next day or so the tropics are likely to play a larger role in short term price direction than during the last several weeks.
My individual market views are detailed in the table at the beginning of the newsletter. I remain in the neutral corner for oil but have upgraded my bias to neutral for Nat Gas due to the latest tropical weather activity. The short term price direction for oil will likely come from how the outcome of the EIA inventory data is digested and viewed by the market participants along with influence form the direction of the US dollar (which is supportive for oil prices at the moment).
Currently most risk assets are marginally positive in quiet overnight trading as shown in the EMI Price Board table below.
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Current Expected Trading Range |
Expected Trading Range | |||
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9/22/10 |
Change |
Low |
High End | |
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From |
End Support |
Resistance | ||
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5:55 AM |
Yesterday | |||
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Nov WTI |
$75.47 |
$0.50 |
$71.00 |
$84.50 |
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Nov Brent |
$78.66 |
$0.24 |
$70.00 |
$80.00 |
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Oct HO |
$2.1289 |
$0.0090 |
$2.0500 |
$2.1500 |
|
Oct RBOB |
$1.9272 |
$0.0076 |
$1.8000 |
$2.0000 |
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Oct NG |
$3.939 |
$0.020 |
$3.855 |
$4.400 |
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10 YR Treasuries |
125.73 |
0.36 |
118.00 |
128.00 |
|
Dow Futures |
10,675 |
(19) |
10,000 |
10,850 |
|
US Dollar Index |
80.015 |
(0.658) |
80.150 |
85.000 |
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Euro/$ |
1.3375 |
0.0138 |
1.2750 |
1.3250 |
|
Yen/$ |
1.1819 |
0.0070 |
1.1400 |
1.2000 |
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.
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