Sooner came on Wednesday as oil prices hit the physiological price of $100/bbl but nor higher for the moment. A combination of new attacks in Nigeria, a return of cold weather, a weak dollar and ongoing turmoil in Pakistan led to the bulls coming out in full force. Interestingly the market traded only one contract (1,000bbls) at $100/bbl in the Nymex open outcry venue. It did not hit $100/bbl in electronic trading where most of the volume is traded.
The market remains very jumpy and overly concerned that a shortage of oil is imminent. So far supply has been ample and there have been no shortages of oil anywhere. OPEC indicated this morning that they currently have no intentions to increase production anytime soon as they believe the latest surge to the upside has been financial in nature and not due to an imbalance of supply. As we reported about a week or so ago the market sentiment has changed backed to bullish indicating that participants are more likely to discount anything bearish and overly embrace anything bullish irrespective of how remote it may be.
Today the market will get a snapshot of US oil inventories. The expectations are calling for another decline in crude oil of about 2 million barrels and modest decline in distillate of about 750,000 barrels and gain in gasoline of about 1.3 million bbls. Refinery runs are also expected to increase about 0.4% on the week. With today’s expectations the market is now projected to show an across the board year on year deficit as well as a deficit versus the 5 year average for the same week. If the actuals come in as predicted the market will interpret them as bullish especially since the sentiment is now strongly bullish.
Nat Gas inventories will be released tomorrow morning and are expected to show another strong withdrawal resulting in a widening of the year on year deficit and a narrowing of the 5 year average surplus. With cold weather once again hitting the northeast and with a surging oil complex NG prices are likely to remain firm through the rest of the week.
| Projections | | 1/3/08 | |
| | | | |
| | Current | Change from | Change from |
| | Projections | Last Year | 5 Year |
| mmbls | | vs. Proj. | vs. Proj. |
| Crude Oil | (2.0) | (28.0) | (4.8) |
| Gasoline | 1.3 | (2.4) | (0.2) |
| Distillate | (0.8) | (9.8) | (1.7) |
| Ref. Runs% | 0.4% | -2.5% | -3.0% |
| Change Level | 88.5% | 91.0% | 91.5% |
| | BCF | BCF | BCF |
| NG, BCF | (100) | (166) | 218 |
We expect prices to continue to trade in a volatile pattern. We are not certain that the market will be able to sustain the current high level without a modest downside correction. However, if the inventories are truly bullish today and the Geopolitical hotspots remain in the news we may not only trade at $100.bbl again but likely breach it this time and trade in triple digit levels.
Currently prices are quietly mixed ahead of this morning inventory report.
| Current Expected Trading Range | | | ||
| | 1/3/08 | Change | Upper | Lower |
| | | From | Resistance | Support |
| | 7:37 AM | Yesterday | | |
| Feb WTI | $99.62 | $0.00 | $100.00 | $90.00 |
| Feb HO | $2.7362 | ($0.0042) | $2.7500 | $2.5000 |
| Feb RBOB | $2.5625 | ($0.0064) | $2.6500 | $2.2000 |
| Feb NG | $7.815 | ($0.035) | $8.000 | $7.000 |
| | | | | |
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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