Oil and dollar driven by Chinese rate hike

Distillate fuel likely drew by about 0.8 million barrels as economy sensitive diesel fuel implied demand also continues to wane even with 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 vs. 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 vs. last year will have narrowed to just 1.7 million barrels while the overhang vs. the five-year average will be steady at 32.9 million barrels. With the US dollar likely to remain on the defensive and with the current strike in France now 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.

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 bullish side as total commercial stocks of crude oil and refined products are likely to have declined marginally for the second week in a row. 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 today. 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.

On the tropical weather front, there is now only one tropical weather pattern that still remains in the tropics. The pattern that is located over the southwestern Caribbean is now a high probability wave or one that has a 70% chance of strengthening into a tropical cyclone over the next 48 hours. Of note, even if the storm in the western Caribbean does organize and strengthen, it is forecast to remain in that area of the world and not work its way to the Gulf of Mexico and thus not threaten oil or Nat Gas producing operations. With a little over a month left to the tropical weather season the probability of any hurricane related disruptions remain on the low side at this point in time.

My individual market views are detailed in the table at the beginning of the newsletter. I have downgraded my oil views to neutral after yesterday’s strong round of profit taking selling even though I view it at the moment as a short-term move. However, I want to see how the market digests what seems to be a possible realignment of the U.S. dollar vs. most major currencies over the next day or so. I still see ongoing support continuing from the financial sector and a slowly evolving improvement in oil fundamentals over the medium term. Equities are neutral for oil and the broader commodity complex while the U.S. dollar is marginally supportive. Oil prices are lower so far this morning as it is in the midst of another decline.

I remain bearish for Nat Gas as the fundamentals continue to be bearish with yet another above average injection into storage forecast for this week’s EIA report.

Currently most all risk assets are in positive territory as U.S. trading gets underway as shown in the EMI Price Board table below.

Current Expected Trading Range

Expected Trading Range

10/20/10

Change

Low

High End

From

End Support

Resistance

5:43 AM

Yesterday

Nov WTI

$80.49

$1.00

$71.00

$84.50

Dec Brent

$82.17

$1.07

$70.00

$85.50

Nov HO

$2.2131

$0.0238

$2.0500

$2.3500

Nov RBOB

$2.0663

$0.0180

$1.8000

$2.2000

Nov NG

$3.528

$0.015

$3.700

$4.000

10 YR Treasuries

126.98

(0.05)

118.00

128.00

Dow Futures

10,964

21

10,000

11,200

US Dollar Index

78.02

(0.401)

76.500

80.150

Euro/$

1.3812

0.0085

1.2750

1.4100

Yen/$

1.2320

0.0042

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.

PH: (888) 871-1207

Email info@energyinstitution.org

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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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