Latest As Of Tuesday Morning

Once again we are starting the day on the defensive as we did Monday morning. On Monday we saw another event driven reversal (as we have been warning the market remains susceptible to these types of moves) on news of Turkish activity against the Kurdish rebels in Northern Iraq.

 

So far this morning the market is moving back to where it was prior to the news as the likelihood of the activity in Northern Iraq resulting in an oil supply disruption is rather remote. So we are once again back to looking at the economy and this week’s round of inventory reports starting with oil on Wednesday.

 

As shown in the following table the market is expecting significant builds in crude oil and gasoline and a modest decline in distillate and Nat gas. This will be the 5^th week in a row that crude oil will have built after declining strongly at the end of the year for accounting and tax reasons. Although crude oil will still show a strong year on year deficit when compared to the 5 year average the shortfall is minimal. Gasoline seems to be on the exact same path as last year with the year on year deficit now just about gone  and with the comparison to the 5 year average now showing a significant surplus. We are once again on a path to hitting record high post winter inventories of gasoline.

 

Distillate stocks are once again expected to fall after moderate winter type weather last week. The year on year deficit is still running in the low double digit levels, however, when  compared to the 5 year average we are still modestly higher than normal. We see a similar pattern for NG.

 

On the refining side with gasoline stocks building and refinery margins still on the defensive we are expecting the more aggressive refiners to throttle back refinery runs further. Over time this may prove to be a bullish signal as production of refined products begins to decline resulting in a reversal of any inventory building. We need to watch this pattern over the next several weeks.

 

If the actual inventories come in as expected we would interpret the repost as neutral to biased to the bearish side.

 

Projections		2/5/08
	Current	Change from	Change from
	Projections	Last Year	5 Year
mmbls		vs. Proj.	vs. Proj.
Crude Oil	2.2	(29.3)	(1.9)
Gasoline	2.0	(1.3)	9.4
Distillate	(1.7)	(11.0)	2.2
Ref. Runs%	-0.2%	-2.5%	-2.1%
Change Level	84.8%	87.3%	86.9%
	BCF	BCF	BCF
NG, BCF	(170)	(255)	98

 

 

As we said in yesterday’s report we still expect the market to test the longer term support levels (shown in the table at the end of the report) well before the market makes another attempt to surge higher (barring any significant event to markedly change the current sentiment).

 

Finally in the category of interesting but a little stretching it we find an old line NFL team (my favorite team) the Giants winning the Super Bowl. There has been a relatively decent relationship between an old line NFL team (like the Giants) winning the Super Bowl and the pattern of the US equity market. When this happens the Dow normally ends the year at a higher level than at the beginning of the year. A bullish signal. If we really stretch the pattern and say a turnaround in equities to a more bullish pattern is likely to result in a continuation of energy demand growth in the US and thus a positive outlook for oil prices. So as the story goes the Super Bowl pattern indicates the Giants winning the Super Bowl would be bullish for equities and thus bullish for oil. As a prudent trader and investor I would strongly encourage all to do their homework and rely on more traditional signals, especially in the difficult environment we are now facing with the economy and energy prices. However, a little light thought now and again starts the day with a smile.

 

Currently oil prices are back on the defensive in early trading.

 

Current Expected Trading Range
	2/5/08	Change	Upper	Lower
		From	Resistance	Support
	5:04 AM	Yesterday
Mar WTI	$89.22	($0.80)	$92.50	$85.25
Mar HO	$2.4617	($0.0216)	$2.5600	$2.4000
Mar RBOB	$2.2895	($0.0222)	$2.3600	$2.2000
Mar NG	$7.939	$0.070	$8.000	$7.500

 

 

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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