Market Review for Friday & the Weekend       

E need to apologize.  We were hit by our worst case of the flu in 20 years on Wednesday and were unable to write reports for Thursday and Friday.  We could not even move enough to apologize for the inconvenience or send out an advisory until now.  Please forgive us; we are just getting back into the swing of things, now.  It really blindsided and leveled us.

Crude oil for March delivery dropped to its lowest level since January 20^th on Friday as traders reacted to another crippling employment report out Friday.  It showed US job losses of 598,000, which was well above expectations calling for a drop of 525,000 jobs.  There was a lot to be taken away from those numbers, but the thing that oil traders took away was a sense that the economy is nowhere near some magical turning point, yet.  That led to Friday’s lows.

Equities traders seem to have seen in Friday’s unemployment figures reason to believe that the Senate will find a renewed sense of urgency to get a stimulus package passed.  The two sides seem to have fallen into two camps: The first feels that even a flawed plan is urgently needed now; the other side wants more tax cuts and infrastructure spending.  There has been talk of a compromise being reached, which many are eager to see. 

The oil complex continues to react to the two competing factors that form the bedrock of the fundamental picture right now.  On the one hand, we have the economy, which is showing no signs of improving or of reaching a corner to turn.  On the other hand, there is seasonal refinery maintenance, which is adding to the crude oil overhang at the same time that it is supporting refined products prices.    

Technicals

           Crude oil prices dropped to $38.60 on Friday, but managed to rally to settle above $40.00 again.  Friday’s low was the lowest price seen since the $32.70 level was touched on January 20^th with the expiration of the February contract.  Gasoline prices were lower on Friday, but they are still within striking distance of the major resistance at 128.61.  A break above that level would point to higher levels.  Gasoline prices made an important comeback late last week and are in a good position to break to the upside again this week. 

Dollars per barrel

Above:  Crude oil ranges remain very tight.  Below:  The crack spread was at $13.67/bbl yesterday. 

Dollars per barrel

March crude oil now has buy-stops over $42.68, $43.44-$43.60, $47.49, $48.59, $49.09, $50.47, $54.62, $56.00, $59.00, $60.00, $62.28, $65.56, $70.46, $71.80, $76.25, $79.17, and $84.83.  Sell-stops are under $38.60, $32.40 & $30.00.  March heating oil has buy-stops over 138.80, 144.00, 148.65, 152.85, 154.00, 154.67, 155.10, 160.25, 164.80, 166.90, 172.71, 176.70, 178.52, 183.02, 189.06, and 192.12.  Sell stops are under 129.80, 127.85, 126.50, 124.26, 120.00 & 116.80.  March RBOB has buy-stops over 128.61, 132.80, 135.07, 144.21, 153.33, 158.00, 158.90, & 160.77.  Sell-stops are under 121.50, 112.00, 109.00, 105.30, 103.95, 96.69, 89.78, 85.45, 83.52, 79.50, 77.60, 76.30, 71.20 & 67.30.

Football: The bears gained 10 yards on Friday on third down and 13, making it fourth and three to go today. 

Technical Support & Resistance

Oil Inventory Reports

      Refinery utilization is still important this time of year, but this week is one that has traditionally seen utilization increases, strangely enough.  It could be that four or five weeks of maintenance have brought units back on line for purely financial reasons, but this week has seen utilization higher in six of the last seven years.  Utilization has averaged 87.73% over the last seven years, with the six-year average increase coming in at 1.183%.  The full seven-year average increase in utilization is 0.914%.   Distillate stocks have decreased in five of the last seven years, gasoline stocks have increased in five of seven years and crude stocks have built in four of the last seven years.

   Distillate stocks are now 12.8 million bbls, or 9.86%, higher than a year ago.  Heating oil inventories are 0.3 mln bbls, or 0.78%, higher than they were a year ago.  Gasoline stocks are 10.2 million bbls, or 4.43%, lower.  Crude oil stocks are now 50.3 million bbls, or 17.00%, higher than a year ago.  Residual stocks are 4.4 mln bbls (11.28%) lower than a year ago, jet fuel stocks are 1.9 mln bbls (4.59%) lower than a year ago.  Utilization is 0.8% lower than a year ago and is 3.31% below the seven-year average and 4.08% below the four-year, pre-hurricane average.

                                                                    DOE Weekly Inventory Statistics

Source: US Department of Energy’s Energy Information Administration

Open Interest Analysis

      Crude oil open interest grew by 7,616 contracts on Thursday, when prices were higher.  That looks like new buying and is supportive.

      Heating oil open interest fell by 367 contracts on Thursday, when prices were higher.  That looks like short covering and is bearish.

      RBOB open interest grew by 5,723 contracts on Thursday, when prices were higher.  That looks like new buying and is supportive. 

      Natural gas open interest grew by 5,851 contracts on Thursday, when prices were higher, which suggests new buying. 

Thursday’s Open Interest Changes:

Crude 1,252,212  up 7,616        Heat 242,815   dn 367       RBOB 185,948  up 5,723       Nat gas 697,839   up 5,851        

CFTC Commitments of Traders  (for the period ended Tuesday, Jan 27th)  

As of Jan 27th:               Long                   Short:

Crude oil                   226,101               174,449                           -contracts held by speculators:  1.30 to 1 long

                                           635,238               676,012                               held by the trade

                                             84,481                 95,359                               held by small specs and hedgers.

Spreads….dn 3,852 contracts   The ratio went from 1.26-to-one long to 1.30-to-one long in the last report.

   Large speculators added 677 long contracts and covered 4,841 shorts over the week under review.  Commercials added 1,289 longs and added 3,647 shorts.  Small specs and hedgers liquidated 2,442 longs and added 718 shorts.  Open interest fell by 4,328 contracts as prices rallied $0.74/barrel.  That looks like short-covering and is bearish.  Large speculators covered the most, with commercials buying fresh long positions.

   The average large speculator has 3,055 long contracts (74 accounts), or 89 more contracts on average on 2 less accounts, and 1,710 short (102 accounts), or an average of 48 contracts less on the same number of accounts.  Commercials held 8,358 longs (76) or 125 more longs on average on one less account, and 8,244 shorts (82), or 57 less shorts on one more account. Reportable positions held 4,922 longs (236) or 74 more contracts on four less accounts, and 4,855 short held by 237 accounts, or 99 more contracts on average over six fewer accounts.  The two sides are as close to balanced as we have seen in a while. 

Heating oil                 24,705                 16,945                           - contracts held by speculators:  1.46 to 1 long

                                           154,034               171,203                              held by the trade.

                                             37,146                 27,737                               held by small specs and hedgers.

Spreads….dn 2,207 contracts.    The ratio of large speculative longs to shorts went from 1.26-to-one to 1.46-to-one in a week.

       Large speculators added 1,560 longs and covered 1,355 shorts.  Commercial accounts added 403 longs and added 2,202 shorts.  Small speculators and hedgers liquidated 725 longs and added 391 shorts.  Open interest fell by 969 contracts as prices dropped 0.13 cents. That looks like light long liquidation, by small specs and hedgers, which would be supportive. 

       The average large speculative long is holding 1,300 contracts (19), while the average short has 547 contracts (31).  The average commercial long is holding 2,567 contracts (60) compared to the average short holding of 2,718 contracts (63).  The average reportable position is 1,901 long (111) while the average short holding is 1,986 (111). Reportable holdings grew by 110 longs and 90 shorts as seven long and six short accounts were closed, bringing each category to 111 accounts.

Rbob Gasoline          50,832                   3,671                          -contracts held by speculators:  13.85 to 1 long

                                           105,636               157,252                             held by the trade.

                                              15,758                 11,303                              held by small specs and hedgers.

Spreads…dn 2,781 contracts   The ratio of large speculative longs to shorts went from 19.78-to-one to 13.85-to-one in a week.

     Large speculative holdings fell by 2,180 longs and grew by 27 shorts over the latest week. Commercial holdings fell by 8,417 longs and fell by 10,758 shorts.  Small speculators and hedgers’ positions fell by 1,706 longs and dropped by 1,572 shorts.  Open interest fell by 15,084 contracts as prices dropped 3.46 cents.  That looks like net long liquidation and is supportive.  All three categories were liquidating fairly heavily.  Commercial accounts sold the most.  The only new positions were on the short side in large speculative accounts.  Commercials and small specs & hedgers were covering shorts, as well.

   The average holdings are 1,037 contracts for each large speculative long (49) and 204 for each large speculative short (18).  The average commercial long now has 1,428 contracts long (74) and 1,829 short (86). Average reportable holdings are 1,218 long (140) against 1,388 short (126).  There were two less long accounts and 10 less short accounts in the reportable category, which cut average long holdings by 243 contracts and decreased the average short holding by 173 contracts.  Large speculative longs are now holding only five times as many contracts each as the large speculative shorts are holding, here.

Naturalgas                72,185               217,658                           -contracts held by speculators:  3.02 to 1 short

                                           288,370               180,250                               held by the trade.

                                             79,624                 42,271                           held by small specs and hedgers.

Spreads…dn 17,218 contracts    The ratio of large speculative shorts to longs went from 2.80-to-one to 3.02-to-one in a week.

  Large speculative holdings liquidated 1,803 longs and covered 2,151 shorts over the latest week. Commercial accounts liquidated 11,442  longs and covered 7,991 shorts, and small speculators and hedgers added 4,763 longs and added 1,660 shorts.  Open interest fell by 25,700 contracts as prices dropped $0.139/mmBtu.  That looks like heavy long liquidation and would be supportive.  It was surely a factor of the February contract expiration, which occurred last week.

   The average large speculator has 1,536 contracts (47) while each large speculative short is holding 3,298 shorts (66).  The average commercial long now has 3,845 contracts long (75) and 3,219 short (56). Average reportable holdings are 3,466 long (173) long and 4,083 short (156).  Large speculative accounts had their average long holding increased by 113 contracts on five fewer accounts while the average short holding was up 66 contracts on two fewer accounts.  Reportable positions were down by 34 contracts on seven fewer long accounts and up 57 contracts spread over nine fewer short accounts.    

Natural Gas & Utility Generation

Natural gas prices rallied more than 13 cents as traders saw existing prices as an opportunity to buy ahead of the weekend.  It seems that a fair amount of the buying came from short-covering ahead of the weekend, while other buying may have been longer-term bargain-hunting. 

Prices have been working sideways lately, but that is nothing new, here.  We seem to go through a period of several weeks moving sideways, then break down to print new lows.  Prices then establish a new baseline from which to move sideways again for a number of weeks.  It remains to be seen whether this will turn out to be anything more. 

While the economy is still extremely weak, as evidenced by Friday’s horrific unemployment figures, recent prices are cutting deeply into future production projects in natural gas production.  Existing prices could also bring back renewed interest from industrial end-users.  At some point, the worm is going to turn, and few traders seem to want to be short at these low levels if the economy reacts to stimulus packages over the next few months. 

Weather forecasts are mixed over the next week or so, with above-normal readings in the East followed by colder temperatures moving into the Midwest by the end of the week.

Cash natural gas prices were lower on Friday, which is in keeping with what we have normally seen leading into weekends, which tend to have less demand from municipalities and industrial users.  Monday’s weather forecasts are likely to set the stage for cash markets over the next few days. 

In cash trading yesterday, Henry Hub prices were at $4.57-$4.87, down $0.08-$0.19 (DJN).  SoCal prices were at $3.64-$3.90, down $0.12-$0.21 on the day.  El Paso Permian prices were down $0.18-$0.19 at $3.15-$3.30.  Katy prices were down $0.02-$0.08 at $4.08-$4.27.  Waha prices were down $0.16-$0.21 at $3.22-$3.31.  Transco 6 was down $1.15-$1.25 to $5.45-$6.00/mmBtu. 

Palo Verde prices were last quoted at $33.50-$36.95/mwh.  Northeastern prices last traded at $44.00-$55.25.  Entergy was last at $35.00-$37.00.  Ercot was last at $30.50-$31.00/mwh. 

Prices seem to have found good support down to $4.28, and we know that there is major support at $4.07.  If that level is broken, prices will immediately break below $4.00.  In the meantime, though, we have to see support from $4.07 up to $4.28 as looking pretty firm right now.  The question is whether the economy will give us any reason to expect these levels can hold. 

In the final analysis, it seems to come down to time.  Prices have found very firm support in the zone outlined above, but we can’t expect those levels to hold indefinitely in a continually weakening economy.  The bulls clearly need something to build a more convincing case upon, and Washington is the only source of that kind of answer, near-term. 

Support is at $4.35-$4.38, $4.21-$4.23, $4.07-$4.10, $3.96-$3.99, $3.82-$3.84 and $3.68-$3.71.  Resistance is at $4.85-$4.86, $5.01-$5.03, $5.22-$5.24, $5.55-$5.57, $5.62-$5.64, $5.99-$6.00, $6.15-$6.18, $6.23-$6.24, $6.34-$6.37, $6.65-$6.69, $6.90-$6.94, and $7.01-$7.04. 

Natural gas prices were firmer on Friday. 

Dollars per million Btu

EIA Weekly Storage Figures

Last week’s EIA report showed a draw of 195 bcf on expectations for draws of 175 bcf.  Stocks are now 60 bcf lower than a year ago, compared to a deficit of 34 bcf a week ago, a deficit of 20 bcf two weeks ago and a deficit of 28 bcf three weeks ago.  Stocks are now 2.83% lower than a year ago.  They are 17 bcf and 0.79% above the five-year average.

The seven-year average of similar Friday’s was for a drawdown this week of 160.6 bcf.  The five-year average was a draw of 158.4 bcf.  Last year, there was a draw of 120 bcf, and the year before there was a draw of 259 bcf.

EIA Report

News & Views

In trading on Globex, March crude oil prices were up $0.62 to $40.79/barrel at 8:30 AM EST, this morning.  March heating oil prices were up 0.77 cents to 1.3675/gallon.  March RBOB prices were up 1.52 cents at $1.2659.  March natural gas was down $0.101 to $4.673/mmBtu. 

Traders in Asia and overnight on Globex were talking about the bears’ inability to push prices dramatically lower last week when the opportunity seemed perfect – especially after the unemployment figure was released.

Senate Democrats claimed on Friday to have cobbled together a working coalition to pass a $780 billion stimulus bill, but nothing has been passed yet.  The deal was expected to sway enough Republican votes to gain the critical 60-vote level.   Dow Jones expects the price tag on the bill to rise to $827 billion once changes made to the bill on the floor are factored in.  It seems that a number of northeastern Republican senators were instrumental in getting the bill this close to possible passage.  We will see, though, what happens as the week wears on. 

Crude oil prices have been trading inside very narrow ranges recently, right between the lows at $32.40-$32.70 and the upside breakout point at $50.47. 

Heating oil prices broke the support at 130.83 on Friday, but they seem to have replaced that with the low at 129.80.  Prices turned back up from that low rather briskly.

We are a little late with these figures, but last week’s DOE report showed four-week average products demand down 2.81%.  Four-week gasoline demand is now down just 0.54%.  Four-week distillate demand is down 3.68%.  Four-week jet fuel demand is down 13.06%.  Four-week residual consumption is now up 0.89% and four-week propane use is up 2.41%. 

Distillate stocks have fallen in five of the last seven years, for a five-year average drawdown of 3.200 mln bbls, with a seven-year average draw of 2.129 mln bbls.  Gasoline stocks have risen in five of the last seven years for a five-year average build of 2.56 mln bbls, with the seven-year average coming in at 1.371 mln bbls.  Crude oil stocks have increased in four of the last seven years, for a four-year average gain of 2.65 mln bbls, with the seven-year average coming in at a build of 0.4 mln bbls.  Utilization has risen in six of the last seven years, for a six-year average increase of 1.183%.  The seven-year average is a gain of 0.914%.  Utilization has averaged 87.73% over the last seven years for this week.

Traders will be watching out for another large crude oil build in this week’s inventory figures.

We have had three large increases in a row now.

An Illustrated Look at Energy Market Factors

A Look at Temperatures

Temperatures will get warmer in the East this week.

http://www.weather.com/

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