Yesterday showed the early signs of the surge possibly starting to break. After hitting new highs in early morning trading the market began to lose steam as the overhang in the fundamentals started to override the financial drivers that the market has been following of late. In addition the US dollar bounced slightly off of its all time lows. The net result is the market moved strongly lower on the day with a very oversupplied gasoline market leading the way down.
Today to get another snapshot of oil inventories with another bearish report expected. As shown in the following table crude oil and gasoline are expected to continue their pattern of building (crude oil build 8th week in a row, gasoline build 11th week in a row – highest level since 1993) while distillate and NG are expected to show normal seasonal declines. With this week’s expected builds the year on year deficit of crude oil is projected to narrow once again while the year on year surplus of gasoline is now expected to be over 16 million barrels. When comparing the projected current levels to the 5 year average for the same week the surplus, or above normal inventory level is widening across the board with gasoline showing a significant surplus of over 18 million barrels. If the actuals come in as expected we would view the report as bearish. The market will view the report s bearish but it is uncertain if the market will focus on the report or once again discount it as it has been doing for the last month or so.
| Projections | | 3/5/08 | |
| | | | |
| | Current | Change from | Change from |
| | Projections | Last Year | 5 Year |
| mmbls | | vs. Proj. | vs. Proj. |
| Crude Oil | 2.5 | (13.2) | 8.8 |
| Gasoline | 0.3 | 16.5 | 18.2 |
| Distillate | (1.8) | (6.4) | 4.4 |
| Ref. Runs% | 0.0% | -1.3% | -2.3% |
| Change Level | 84.7% | 86.0% | 87.0% |
| | BCF | BCF | BCF |
| NG, BCF | (125) | (137) | 94 |
OPEC is also meeting today with the hawks within OPEC still indicating they are uncomfortable with not cutting production at this time as they become more concerned over demand growth weakening during the 2nd quarter and subsequent inventory building. On the other hand Saudi Arabia, the leading dove within OPEC is quoted over the news wires that the oil complex is comfortable and there is no need to cut nor increase production. Normally what Saudi Arabia says is what usually occurs within OPEC. So we do not expect anything other than an rollover agreement.
With little else going on we would normally expect the market to continue its downside correction that was started yesterday. This is not a given as the market has not been trading in any kind of normal pattern rather a very emotional bullish market sentiment has been the main driver. It will be important to see how the market trades on Wednesday after all of the potential bearish news (inventories and rollover OEPC agreement) is reported and digested by the market. If the market continues to discount this bearish news it will be off to the races once again as the market will surge higher putting the long awaited correction on the back-burner for now. If now we could see a substantial decline as the market remains overvalued at every level of the infrastructure.
Currently prices are firm.
| Current Expected Trading Range | | | ||
| | 3/5/08 | Change | Upper | Lower |
| | | From | Resistance | Support |
| | 6:00 AM | Yesterday | | |
| Apr WTI | $100.50 | $0.98 | $103.25 | $99.20 |
| Apr HO | $2.8253 | $0.0335 | $2.9200 | $2.7100 |
| Apr RBOB | $2.5687 | $0.0396 | $2.7000 | $2.5200 |
| Apr NG | $9.407 | $0.054 | $9.800 | $8.700 |
| | | | | |
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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