Latest As Of Wednesday Morning

The energy complex is back to being focused on the weakening US dollar. So far this week the market has ignored all of last week’s reasons for the start of the downside correction and once again focused its attention on the US dollar which is back to its weakening pattern for the second day in a row. The thinking this week is the US economy remains weak and the Fed is likely to continue to reduce interest rates putting further downside pressure on the dollar and thus support for oil and other commodities.

 

Getting back to the fundamental side of the ledger the oil complex will get the latest snapshot of inventories today. As shown in the following table the market is expecting a sizeable build in crude oil with corresponding decline in both gasoline and heating oil. Refinery runs are expected to increase about 0.5% on the week. If the numbers come in as expected the market is likely to view the report as neutral. The year on year crude oil deficit continues to narrow while the huge year on year surplus of gasoline continues over the 20 million barrel level. Distillate inventories remain in a normal seasonal pattern for this time of the year.  Comparing the expected results to the 5 year average for the same week we see an across the board surplus for the three main commodities indicating a comfortable supply situation especially for gasoline.

 

Nat Gas stocks are expected to show a withdrawal of about 50 BCF this week bringing the total level below last year at this time but just about equal to the 5 year level for the same week. I would interpret NG stocks as neutral if the projections come in as expected.

 

Projections		3/26/08
	Current	Change from	Change from
	Projections	Last Year	5 Year
mmbls		vs. Proj.	vs Proj.
Crude Oil	1.7	(15.0)	5.7
Gasoline	(0.8)	21.5	22.3
Distillate	(1.5)	(6.0)	1.7
Ref. Runs%	0.5%	-2.0%	-3.6%
Change Level	84.3%	86.3%	87.9%
	BCF	BCF	BCF
NG, BCF	(50)	(248)	3

 

So far the market is not acting like last week was the beginning of a strong downside correction, rather it is starting to look like a continuation of further over-valuation of energy prices. The dollar remains front and center for the moment but could be pushed to the background once oil inventories are released at 10:30 am today. We still view the market as one that remains very susceptible to erratic, choppy trade patterns with reversals likely at any time on little supporting information. A very high risk/low reward pattern, especially in the short term. Hedging and trading remain difficult at best.

 

Currently energy prices are firm while the US dollar weakens versus both the Euro and the Yen as shown in the following table.

 

Current Expected Trading Range
	3/26/08	Change	Upper	Lower
		From	Resistance	Support
	7:36 AM	Yesterday
May WTI	$102.51	$1.29	$112.50	$99.20
Apr HO	$2.9511	$0.0263	$3.2500	$2.7100
Apr RBOB	$2.6990	$0.0188	$2.9000	$2.5200
Apr NG	$9.491	$0.072	$10.250	$8.700
Euro/$	1.5674	0.0144	1.5818	1.5200
Yen/$	1.0113	0.0096	1.0450	0.9900

 

 

 

Dominick A. Chirichella

Energy Management Institute

tel 646-202-1433

tel 845.368.3904

fax 801.383.7510

dchirichella@mailaec.com

www.energyinstitution.org

www.advancedenergycommerce.com

 

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