Another very interesting and volatile trading week in the energy complex and beyond. The main feature of the week is the varying interpretations of the outcome of the weakening US economy and the impact it will have in the US dollar and thus oil. As we elaborated in detail in yesterday’s report the fundamentals indicate the market is well supplied, especially in the area of gasoline.
However, we have seen more indications that the US economy may get a bit worse before it gets better, at least according to Fed Chairman Bernanke. That being the case one side of the market views that as bullish for oil as the remedy for the Fed is to continue to lower interest rates which in turn will further weaken the US dollar which is bullish for oil (and other commodities). On the other side of the fence are those that believe a faltering US economy will in fact reduce demand for oil further improving the fundamentals and thus bearish for oil. We have seen the 4 week average for Us demand to be running below the same period last year. Higher prices may be starting to impact consumption of energy in the US.
As shown in the following table the activity in the energy complex indicates that neither view is dominate as of yet. If I have to pick one view I would be leaning toward the latter view discussed above….faltering economy, reduced consumption, improved fundamentals and thus bearish for oil and energy in general. With the exception of gasoline (which was hit with a short covering rally) the rest of the energy complex put in a down week with heating fuels (heating oil & NG) leading the complex lower. Gasoline was also the most volatile of the individual commodities (as measured by the range percentage). Overall the entire complex experienced a very wide trading range and this translated into the refining side of the business with heating oil margins finally starting to shed some of their value while the gasoline crack recovered more from short covering rather than from any fundamental improvement in the gasoline market. Inventories of gasoline are still over 22 million barrels above last year at this time.
On the financial side of the market the equities market is likely to finish the week with positive gains while the US dollar held its own on the week slightly firming. It is still a bit early to conclude that the US dollar has bottomed and is turning around as the last few weeks of firming could still be just a short covering rally. The market will be watching the performance of the dollar over the next few weeks.
| | | Trading For the Week | | | | |
| | | | | | | |
| | Current | Change | Change | 14-Mar | Weekly | Range % of |
| | Price | From Thurs | For Week | Settle | Range | Fri Close |
| | 7:36 AM | | | | | |
| May WTI | $104.89 | $1.06 | ($0.73) | $105.62 | $6.89 | 6.52% |
| May HO | $2.9528 | $0.0300 | ($0.0348) | $2.9876 | $0.0811 | 2.71% |
| May RBOB | $2.7336 | $0.0093 | $0.0201 | $2.7135 | $0.1928 | 7.11% |
| May NG | $9.422 | $0.005 | ($0.378) | $9.800 | $0.622 | 6.35% |
| May 08 Cracks | | | | | | |
| RBOB Crack | $9.921 | ($0.67) | $1.57 | $8.347 | $3.25 | 38.94% |
| HO Crack | $19.128 | $0.20 | ($0.73) | $19.859 | $2.30 | 11.58% |
| 321 Crack | $12.959 | ($0.382) | $0.81 | $12.146 | $2.937 | 24.18% |
| | | | | | | |
| Euro/$ | 1.5672 | 0.0044 | ($0.0031) | $1.5703 | $0.0359 | 2.29% |
| Yen/$ | 0.9813 | 0.0004 | ($0.0287) | $1.0100 | $0.0411 | 4.07% |
We do expect the market to continue in the pattern we have seen over eh last three week. Again it may a bit too early but we are three weeks into the downside correction and so far the market has not come close to hitting the tops of the market just yet. Early signs indicate that the surge may be over for the time being and the correction may be in place, albeit a very choppy, erratic downside pattern.
Currently oil prices are firm as the financial markets await this morning’s job report (due out at 8:30 am EST). The market is looking for a decrease of about 50,000 non-farm jobs and unemployment increasing from 4.8% to 5%. A bearish jobs reports may likely be viewed as bullish for oil (at least by part of the oil market participants as described above) as it could serve as a catalyst for the Fed to continue to aggressively lower interest rates which is bearish for the dollar and bullish for oil and other commodities.
Keep your seat belts fastened!
| Current Expected Trading Range | | | ||
| | 4/4/08 | Change | Upper | Lower |
| | | From | Resistance | Support |
| | 7:36 AM | Yesterday | | |
| May WTI | $104.90 | $1.07 | $112.50 | $99.20 |
| May HO | $2.9528 | $0.0300 | $3.2500 | $2.7100 |
| May RBOB | $2.7336 | $0.0093 | $2.9000 | $2.5200 |
| May NG | $9.425 | $0.008 | $10.250 | $8.700 |
| | | | | |
| Euro/$ | 1.5672 | 0.0044 | 1.5818 | 1.5200 |
| Yen/$ | 0.9813 | 0.0004 | 1.0450 | 0.9900 |
Dominick A. Chirichella
Energy Management Institute
tel 646-202-1433
tel 845.368.3904
fax 801.383.7510
www.advancedenergycommerce.com
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