Dominick Chirichella's OilView: LAtest As Of Tuesday Moring

The oil complex continues to make new highs (seemingly every hour) even though there is not much real support for prices in the $109/bbl area for WTI. In fact oil products continue to lag behind, especially gasoline. The primary reason for most of the surge has been in response to a weak US dollar causing investment flow into oil as a hedge against inflation and looking for better returns than currently available in the equity or most financial markets. For what it is worth the US dollar is hovering above its all time lows (versus the EURO) and remains very oversold.

That is all well and good but at some point oil is going to have to look at the reality of supply and demand, especially as we approach the upcoming gasoline driving season. The International Energy Agency released its latest monthly oil market assessment (see highlights below) and indicate that demand is starting to get impacted in the US and elsewhere as prices for oil soar.

IEA Monthly Oil Market Assessment Highlights.

Oil prices again rose to new records above $105/bbl in early March, supported by strong distillate markets, geopolitical tensions and OPEC’s decision to rollover targets until the end of the summer. Persistently weak gasoline and fuel oil cracks are forcing distillate cracks higher to encourage marginal refiners to meet strong European gasoil demand.

Projected global oil product demand in 2008 is little changed at 87.5 mb/d, with downward pressures from weaker economic growth in the OECD mostly offset by stronger FSU projections. Historical baseline revisions lift 2006 demand, but in 2007 are more than offset by a weaker-than-expected 4Q07 in the OECD and data revisions to several non-OECD countries.

Global oil supply increased by 185 kb/d in February to 87.5 mb/d with higher January OPEC crude supplies lifting the base. Output recovery in Canada, Mexico and the Caspian republics offset reductions for Norway and OPEC in February. Seasonal limits on OECD production and steady OPEC output may flatten global supply over the next two months.

OPEC crude supply fell by 120 kb/d to 32.1 mb/d in February. Middle East Gulf and West African output fell 300 kb/d, offset by a 150 kb/d increase in Iraqi supply. Rolling over their existing target and assuming steady Iraqi output would leave output 0.56 mb/d below underlying 1Q08 demand, but 0.96 mb/d above this for 2Q08. OPEC effective spare capacity remains near 2 mb/d.

OECD industry stocks built by 32.6 mb in January from an upwardly revised December, to reach 2,617 mb or 52.9 days of forward cover. December OECD revisions totaled +29.5 mb, including large upward adjustments to US and Japanese crude and European distillate stocks. Preliminary data show US and Japan stocks fell 23.0 mb in February.

Global refinery crude throughput remains under downward pressure from poor refining economics, seasonal maintenance and operational problems. Economic run cuts continue to hamper activity in Europe and the Pacific, while year-on-year growth in 1Q08 of 0.7 mb/d is driven by China, the FSU and Asia

Later today the EIA will release its Short Term Energy Outlook and is likely to come to the same conclusions as the IEA report just released. Fortunately for the bulls the market is not paying much attentions at the moment to any fundamental analysis or conclusions from this analysis. Tomorrow we will also get another snapshot of oil inventories in the US. The latest forecast is calling for a build of about 1.7 million barrels of crude, another build of about 100,000 to 200,000 barrels of gasoline and decline of about 2 million barrels of distillate. Not very bullish, but the market has continued to discount the bearish oil inventory reports for months.

As we have been discussing in our report for over a month…from the spec side one must still trade from the long side with tight, trailing stops while purchase side hedgers should continue to work with options strategies, like debit call spreads.

Currently prices are firm.

Current Expected Trading Range
	3/11/08	Change	Upper	Lower
		From	Resistance	Support
	7:38 AM	Yesterday
Apr WTI	$108.97	$1.07	$110.00	$99.20
Apr HO	$2.9970	$0.0236	$3.0000	$2.7100
Apr RBOB	$2.7238	$0.0089	$2.9000	$2.5200
Apr NG	$10.071	$0.047	$10.250	$8.700