Dominick Chirichella's OilView: Latest AS Of Friday Morning

Another dramatic week in the commodity complex and in particular the energy markets. The vast majority of the trading community has focused most of its attention on the financial sector for guidance as to the next move in oil. All other drivers have taken a back burner for the moment. Although not completely. What I mean by that is shown in the following table of weekly price activity.

Interestingly RBOB gasoline has declined week on week even as the rest of the complex has continued to surge. Why does this significant divergence exist? Primarily because gasoline inventories stand at the highest level for this time of the year since the early 1990’s. A major gasoline surplus exists and seems to be continuing to grow on a weekly basis. Gasoline stocks have built for the last 13 weeks in a row and have now exceeded the normal time for the year when gasoline stocks start to seasonally decline.

With the heating season just about over and the gasoline driving season right around the corner it is very interesting to note in the table below that heating oil lead the complex higher this week while gasoline declined, another divergence or note. Interestingly distillate stocks remain noticeably above the normal, 5 year average for this time of the year while ultra low sulfur diesel stocks have built for the third week in row. Not a situation that seems to justify an almost $0.17/gal increase this week in heating oil prices.

Although WTI has been leading the surge higher over the last 5 weeks or so, HO has taken the lead in moving higher as well as in the volatility column (as measured by the percentage change in the weekly trading range). The trading pattern this week was once again unfavorable for the refinery sector with the spot RBOB gasoline crack spread losing almost 80% of its value or declining almost $6/bbl on the week. Although HO lead the outright rally higher the HO crack increase by around $2.50/bbl or not nearly enough to smooth out the 3-2-1 crack spread which decline over $3/bbl.


		Trading For the Week

	Current	Change	Change	7-Mar	Weekly	Range % of
	Price	From Thurs	For Week	Settle	Range	Fri Close
	7:48 AM
Apr WTI	$109.85	($0.48)	$4.65	$105.20	$6.90	6.56%
Apr HO	$3.1167	($0.0081)	$0.1697	$2.9470	$0.2140	7.26%
Apr RBOB	$2.6670	($0.0158)	($0.0273)	$2.6943	$0.1082	4.02%
Apr NG	$10.233	$0.003	$0.464	$9.769	$0.639	6.54%

Apr 08 Cracks
RBOB Crack	$2.164	($0.18)	($5.80)	$7.960	$4.13	51.88%
HO Crack	$21.051	$0.14	$2.48	$18.570	$5.36	28.86%
321 Crack	$8.397	($0.077)	($3.06)	$11.461	$4.536	39.58%

Finally on this week’s trading pattern we see divergences which are caution signals that the move may be changing sooner than later. However, we do expect the highly volatile and somewhat irrational trading pattern to continue into next week at a minimum. We believe we are approaching a strong resistance area for WTI in the $122/bbl level and a level that could prove to be difficult to sustain without strong fundamentals and/or Geopolitical support, neither of which exists at the moment. As we have been recommending the spec side should continue to work with tight trailing stops while trading this market from the long side and the purchase hedging community should only be using option spread techniques which will allow for market participation when the downside correction comes.

Currently prices are drifting lower as the US dollar has gained some ground overnight.

Current Expected Trading Range
	3/14/08	Change	Upper	Lower
		From	Resistance	Support
	7:48 AM	Yesterday
Apr WTI	$109.85	($0.48)	$110.00	$99.20
Apr HO	$3.1167	($0.0081)	$3.0000	$2.7100
Apr RBOB	$2.6670	($0.0158)	$2.9000	$2.5200
Apr NG	$10.233	$0.003	$10.250	$8.700