Oil turns bullish on dollar and equity support

With runs expected to decline by 0.3% and demand holding, I am expecting a modest draw in gasoline stocks and in distillate fuel. Gasoline stocks are expected to decline by about 300,000 barrels as refiners continue 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 slightly to around 7.9 million barrels while the surplus versus the five year average for the same week will be down to 21.4 million barrels. The industry seems to be starting to work off the surplus that has remained since the end of the driving season in an effort to at least put a floor on gasoline prices heading into the winter heating season.

Distillate fuel likely drew by about 0.8 million barrels as economy sensitive diesel fuel implied demand continues to increase as a result of agriculture demand for the harvest along with distillate fuel exports likely having increased as the arb is open and the US dollar is weak versus most major currencies that are likely recipients of US exports of distillate fuel. If the actual EIA data is in sync with my distillate fuel projection, the surplus versus last year will have declined to just 1 million barrels while the overhang versus the five year average will be down to 31.8 million barrels. With the US dollar likely to remain on the defensive and with the current terminal strike in France possibly spreading to the French refineries, exports of distillate fuel may increase over the next several weeks resulting in a further reduction of the inventory overhang.

As usual do not overreact to the API data as more often than not it is not in line with the more widely followed EIA data. If the EIA report is within the projections, I would expect the market to view the results as mostly neutral with a slight bias to the bullish side due to a potential declines in refined products. However, whether or not the market reacts at all to the inventory report will be dependent on what is going on in the financial markets. If any combination of equities rising and the US dollar declining occurs, the market is likely to discount the inventories and focus more on the perception trade or what the fundamentals might be down the road. On the other hand if the financial markets are not supportive the market will be forced to look at and digest the current fundamentals which seem to be improving but still surplus.

The tropical weather situation became a little less active overnight as the weather pattern in the Atlantic dissipated while the Caribbean storm did strengthen to a tropical depression. However, as shown in the following graphic Tropical Depression 17 is now projected to make an abrupt u-turn and head out into the Atlantic posing no threat what so ever to the oil and Nat Gas producing operations in the Gulf of Mexico. This storm is likely to strengthen a bit more to a Tropical Storm but will likely end its life out in the middle of the Atlantic and out of harm’s way. As such the tropics continue to be an area to watch but not to react to or spend any trading capital on at this point in time.

My individual market views are detailed in the table at the beginning of the newsletter. I have maintained my oil views as cautiously bullish as I see ongoing support coming from the financial sector along with what might be an improving situation in the overall fundamental picture. I have once again downgraded my view of Nat Gas back to cautiously bearish as the tropics once again look like they are no threat to energy supplies.

Currently oil prices are lower while the financials are still mostly supportive for oil prices as well as the broader commodity complex as shown in the EMI Price Board table below.

Current Expected Trading Range

Expected Trading Range

10/6/10

Change

Low

High End

From

End Support

Resistance

7:05 AM

Yesterday

Nov WTI

$82.50

($0.32)

$71.00

$84.50

Nov Brent

$84.46

($0.38)

$70.00

$80.00

Nov HO

$2.2871

($0.0155)

$2.0500

$2.3000

Nov RBOB

$2.1166

($0.0089)

$1.8000

$2.1000

Nov NG

$3.756

$0.013

$3.700

$4.000

10 YR Treasuries

126.98

0.34

118.00

128.00

Dow Futures

10,885

21

10,000

10,850

US Dollar Index

77.88

(0.087)

76.500

80.150

Euro/$

1.3854

(0.0037)

1.2750

1.3600

Yen/$

1.2048

0.0013

1.1400

1.2000

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.

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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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