Yesterday’s oil inventories we viewed as bearish and the data for crude showed a larger than expected build of 3.6 million barrels and gasoline showed another larger than expected build of 3.6 million barrels. Distillate inventories showed a draw of 1.5 million barrels which was within expectations. Overnight prices reversed and began to move lower after spending the last five days moving higher on renewed concerns of an economic slowdown here in the U.S. despite another interest rate cut of 50 basis points by the FED yesterday.
As we have been discussing for the past several weeks we believe oil prices are more to the downside as equities markets continue their decline. Also the likelihood of OPEC increasing production does not seem to be in the cards despite calls from the U.S. calling for OPEC to increase production. Yesterday the Iranian Oil Minister said the oil markets are well supplied and does not see the need for OPEC to increase output when they meet in Vienna Friday. As we mentioned Monday we expect the earliest OPEC will adjust production will be at the March meeting. However, this time we would expect OPEC to begin to think about supporting a price floor.
After analyzing yesterday’s inventory data for the oils we feel the market is once again going to test the lows. With a combination of warmer than normal temperatures expected in the majority of the US that consumes most of the heating fuels and a building of gasoline inventories we do expect prices to remain under pressure over the next several week (barring any major shift in the direction of the equities markets). As such we expect prices will once again retest the lower support levels shown in the table at the end of this report. Over the next week or so we believe the short side of the ledger will be the trade of choice for the spec community as we continue to recommend to the buy type hedgers to remain poised to buy but not just yet.
Currently prices are lower
| Current Expected Trading Range | Jan 31,2008 | |||
| | Thursday | Change | Upper | Lower |
| | as of | From Prev. | Res. | Support |
| | 9:14 AM | | | |
| Mar WTI | $91.00 | ($1.33) | $92.50 | $86.00 |
| Mar Brent | $91.55 | ($0.98) | $95.50 | $86.50 |
| Feb HO | $2.5200 | ($0.0293) | $2.7500 | $2.4400 |
| Feb Gasoil | $806.00 | ($4.25) | $840.00 | $750.00 |
| Feb RBOB | $2.2968 | ($0.0372) | $2.6500 | $2.1800 |
| Mar NG | $8.034 | ($0.011) | $8.000 | $7.600 |
Salvatore Umek
Energy Management Institute
tel. 201.659.7410
cell. 201.697.5834
fax. 201.624.7164
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