As we begin another week of trading the early focus is back t the economy. After staging a bit of a short covering recovery the financial markets around the world are back on the defensive as are the markets in the energy complex. WTI is back trading below the $90/bbl level in overnight trading as participants await the next round of economic indicators.
As we have been discussing over the last several weeks we believe oil prices are more to the downside as equities markets continue their decline. We also believe that oil prices are not yet low enough to attract any intervention by OPEC nations when they meet this Friday (Feb 1) in Vienna. Indications are surfacing from several OPEC nations that they will leave production as is since oil fundamentals remain pretty much the same as they were during their last meeting at the end of 2007. 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.
We have seen WTI trade as low as $85/bbl during the latest downside move. If the market breaks that support level we could ultimately see prices (basis WTI) breach the $80/bbl levels and begin trading in the mid- to high $70’s. If that happens we believe OPEC will intervene and support prices by cutting production. We do not think OPEC will allow the market to trade below the $75/bbl level.
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 across the board.
| Current Expected Trading Range | | | ||
| | 1/28/08 | Change | Upper | Lower |
| | | From | Resistance | Support |
| | 4:16 AM | Yesterday | | |
| Mar WTI | $89.52 | ($1.19) | $92.50 | $86.00 |
| Feb HO | $2.4880 | ($0.0311) | $2.7500 | $2.4400 |
| Feb RBOB | $2.2950 | ($0.0232) | $2.6500 | $2.1800 |
| Feb NG | $7.951 | ($0.032) | $8.000 | $7.600 |
| | | | | |
Dominick A. Chirichella
Energy Management Institute
tel 646.202.1433
fax 801.383.7510
dchirichella@emimail.org
www.energyinstitution.org
www.advancedenergycommerce.com
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