What a difference a year makes. The energy complex put in a strong year. After declining slightly across 2006 the energy complex came back with the bulls in control throughout most of the year. As shown in the following table HO led the way higher with a gain of over $1/gal or 65.8% in 2007. RBOB & WTI showed gains of $0.8887/gal and $34.93/bbl respectively. A gain of 55.47% for RBOB and 57.22% for WTI. Although WTI fell short of the $100/bbl crude oil is well on its way to breaching this level.
On the refining side of the equation the HO crack are significantly higher to start the New Year versus where it was last year. The HO crack is 152.3% higher as a result of strong distillate demand. The gasoline crack has not been as robust showing a gain of just $2.40/bbl as compared to last year of 38.4%. Overall the highly watched 3-2-1 crack spread is now 75.24% higher than it was to end 2006.
NG also put in a gain for 2007 but not anywhere near the magnitude as the oil complex. As a result of very comfortable levels of inventories and forecasts for warmer than normal weather for a good portion of the winter NG has gain 18.8% as compared to the end of 2006 or $1.184/mmbtu.
| | | | | |
| 2007 Performance of Nymex Energy Contracts | ||||
| | | | | |
| | 29-Dec | 29-Dec | Change | % Change |
| | 2007 | 2006 | For YTD | YTD |
| | | | | |
| Spot WTI | $95.98 | $61.05 | $34.93 | 57.22% |
| Spot HO | $2.6494 | $1.5979 | $1.0515 | 65.81% |
| Spot RBOB | $2.4908 | $1.6021 | $0.8887 | 55.47% |
| Spot NG | $7.483 | $6.299 | $1.184 | 18.80% |
| | | | | |
| HO Crack | $15.29 | $6.06 | $9.23 | 152.31% |
| RBOB Crack | $8.63 | $6.24 | $2.40 | 38.40% |
| 3-2-1 Crack | $10.94 | $6.24 | $4.70 | 75.24% |
So where do we go from here and what will 2008 look like at the end of the year? Prices are already firming this morning on news of militant attacks in Nigeria. With all of the turmoil in Pakistan possibly spreading to the rest of the region it is almost certain that crude oil will trade over $100/bbl sooner than later. With OPEC doing a great job in keeping the world’s inventories at the lower end of normal and with many of the ongoing Geopolitical hotspots moving back into the forefront we can expect another year of firm energy prices. We also expect volatility to increase another notch as the trading range will remain wide & erratic at times. The market will also be watching the evolving US economy and the state of the US dollar. A weakening economy will be interpreted as a weakening in oil demand and thus some downside pressure on oil prices. However, this could be short lived as the Fed would likely lower interest rates, weakening the USD and thus more bullish for oil. Just some of the many interrelated variables we will be watching as we start yet another year with oil prices in a major long term up trend.
Currently prices are firm.
| Current Expected Trading Range | | | ||
| | 1/2/08 | Change | Upper | Lower |
| | | From | Resistance | Support |
| | 7:43 AM | Yesterday | | |
| Feb WTI | $97.44 | $1.46 | $100.00 | $90.00 |
| Feb HO | $2.6862 | $0.0368 | $2.7500 | $2.5000 |
| Feb RBOB | $2.5312 | $0.0404 | $2.6500 | $2.2000 |
| Feb NG | $7.617 | $0.134 | $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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