As we discussed in yesterday’s report the energy markets are being driven by the direction of the equities markets. We experienced another strong sell-off in equities and energies. Prices traded down to our predicated support level for everything other than gasoline which came close. However. Prices bounced off of the lows and settled above the lows on an intraday short covering rally initiated by the announcement of the Fed cutting the Fed Funds rate by an a unprecedented .75%. This help to stabilize equities a bit which reversed the selling in the oil complex.
In overnight trading the energy complex remains not the defensive with everything trading/hovering near the long term support levels shown in the table at the end of the report. We expect the market to continue to focus on the direction of the equities markets as all other energy drivers still remain quite for the moment. The next pure energy event will be the release of inventories on Thursday for both oil & NG.
The early projections are shown in the following table in comparison to last year and the same week 5 year average. The market is expecting an across the board build in the oil complex and a seasonal withdrawal for NG. Refinery runs are expected to show another small decline as refinery margins continue to weigh on that sector of the industry. In comparison to last year the most glaring difference is the year on year deficit for crude oil. However, when compared to the 5 year average the deficit is much more modest and well within the normal operating range for crude oil. If refinery margins remain weak refiners are going to keep runs at below normal rates thus forcing above normal builds in crude oil going forward. If this proves to be the case we would then expect to see above normal declines in refined products which could foster a reversal in the current direction of oil prices.
If the actuals come in as predicted we would expect the market to interpret the reports as neutral to biased to the bearish side.
| Projections | | 1/23/08 | |
| | | | |
| | Current | Change from | Change from |
| | Projections | Last Year | 5 Year |
| mmbls | | vs. Proj. | vs. Proj. |
| Crude Oil | 1.5 | (33.6) | (6.6) |
| Gasoline | 1.5 | (4.0) | 1.6 |
| Distillate | 0.1 | (12.7) | (3.2) |
| Ref. Runs% | -0.1% | -0.4% | -1.5% |
| Change Level | 87.0% | 87.4% | 88.5% |
| | BCF | BCF | BCF |
| NG, BCF | (155) | (221) | 224 |
Although prices are still on the decline we continue to waive the caution flag as the market is becoming more susceptible to a strong short covering rally. Prices are hovering near key support levels and held after yesterday’s rout in the complex and the Fed actions are likely to ad a bit more stability to the world’s equities markets. A reversal in equities will also cause a reversal in oil prices in the short term. We will have to watch this relationship closely. If equities do not rebound in the short term we will definitely breach the key support levels for oil and could result in WTI trading in the low 80’s before stabilizing, an interesting change in direction over the last three weeks.
Currently prices are lower across the board.
| Current Expected Trading Range | | | ||
| | 1/23/08 | Change | Upper | Lower |
| | | From | Resistance | Support |
| | 7:39 AM | Yesterday | | |
| Mar WTI | $88.12 | ($1.09) | $92.50 | $86.00 |
| Feb HO | $2.4508 | ($0.0218) | $2.7500 | $2.4400 |
| Feb RBOB | $2.2589 | ($0.0217) | $2.6500 | $2.1800 |
| Feb NG | $7.650 | ($0.020) | $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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