Oil climbing on strong demand and weak dollar

Distillate fuel likely drew by about 0.4 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 U.S. dollar is weak versus most major currencies that are likely recipients of U.S. exports of distillate fuel. If the actual EIA data is in sync with my distillate fuel projection, the surplus versus last year will have widened to just 4.3 million barrels while the overhang versus the five year average will be up to 32.8 million barrels. With the U.S. dollar likely to remain on the defensive and with the current terminal strike in France possibly spreading to other 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 which will be released late tomorrow afternoon as more often than not it is not in line with the more widely followed EIA data. If the EIA report is within the projection, I would expect the market to view the results as mostly neutral with a slight bias to the bearish side as total commercial stocks of crude oil and refined products are likely to have built marginally. 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 U.S. 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 continues to be a non-event as the activity level also begins to start to wind down as we head toward the end of the tropical weather season at the end of November. The weather pattern that has emerged in the west-central Caribbean Sea last week is still a hurricane (Hurricane Paula) as shown in the following graphic. This storm is now heading for an extended visit to Cuba where it will likely weaken to a tropical storm and then to a depression as it makes landfall tomorrow and remains over Cuba for several days as it traverses the island. Obviously the projected path will not take Paula anywhere near the sweet spot of oil and Nat Gas producing operations in the Gulf of Mexico. 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. The tropical season continues to be a non-event insofar as impacting energy supplies in the U.S. Gulf of Mexico. The official tropical weather season goes to the end of November so there is still plenty of time for a storm or two to work into the U.S. Gulf, but based on what has happened so far this season the likelihood of that happening is on the low side.

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 and a slowly evolving improvement in the fundamentals as demonstrated by this morning’s IEA forecast. I remain cautiously bearish for Nat Gas as the tropics once again look like they are no threat to energy supplies and the fundamentals are bearish.

Currently, most all risk assets are in positive territory in overnight trading as shown in the EMI Price Board table below.

Current Expected Trading Range

Expected Trading Range

10/13/10

Change

Low

High End

From

End Support

Resistance

7:43 AM

Yesterday

Nov WTI

$82.80

$1.13

$71.00

$84.50

Nov Brent

$84.51

$1.01

$70.00

$80.00

Nov HO

$2.2871

$0.0246

$2.0500

$2.3500

Nov RBOB

$2.1488

$0.0249

$1.8000

$2.2000

Nov NG

$3.667

$0.038

$3.700

$4.000

10 YR Treasuries

126.97

(0.11)

118.00

128.00

Dow Futures

11,029

72

10,000

11,000

US Dollar Index

77.28

(0.308)

76.500

80.150

Euro/$

1.3964

0.0059

1.2750

1.4100

Yen/$

1.2229

0.0004

1.1400

1.2300

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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