As we approach the end to another trading week in the energy complex one need only look at the trading performance of the currency markets to quickly determine how the energy did. With little else to focus on the energy complex continues to get all of its directional cues from the ups and downs of the US dollar.
Although the dollar only weakened slightly on the week (versus the Euro) the longer term trend (as discussed in yesterday’s report) has been a deteriorating dollar. In fact since the beginning of this year for each 1% decline in the US dollar WTI has increased about 2.25%.
This week saw gasoline lead the way higher even though gasoline inventories remain over 18 million above last year’s level and the EIA is projecting a decline in gasoline demand this driving season. Not a very bullish situation yet the market has embraced the weekly decline in gasoline stocks (normal for this time of the year as the industry begins the switch to summer grade gasoline) and drove prices higher without considering the absolute reality that gasoline is very well supplied and the likelihood for any supply problems are very low. The rest of the complex followed gasoline and took a good portion of its cue from the currency market. Even NG continues to ride the heels of the oil complex trading above the $10/mmbtu level as NG stocks build at an above normal level.
From a volatility perspective NG and RBOB gasoline were the most volatile individual instruments in the complex this week. Overall the entire complex continues to trade at an above normal level of volatility.
| | | Trading For the Week | | | | |
| | | | | | | |
| | Current | Change | Change | 14-Mar | Weekly | Range % of |
| | Price | From Thurs | For Week | Settle | Range | Fri Close |
| | 6:42 AM | | | | | |
| May WTI | $114.06 | ($0.80) | $3.92 | $110.14 | $5.98 | 5.43% |
| May HO | $3.2490 | ($0.0184) | $0.0515 | $3.1975 | $0.1387 | 4.34% |
| May RBOB | $2.9273 | ($0.0305) | $0.1200 | $2.8073 | $0.1990 | 7.09% |
| May NG | $10.310 | ($0.073) | $0.409 | $9.901 | $0.720 | 7.27% |
| May 08 Cracks | | | | | | |
| RBOB Crack | $8.887 | ($0.48) | $1.12 | $7.767 | $2.38 | 30.62% |
| HO Crack | $22.398 | $0.03 | ($1.76) | $24.155 | $1.78 | 7.37% |
| 321 Crack | $13.345 | ($0.313) | $0.17 | $13.175 | $2.181 | 16.55% |
| | | | | | | |
| Euro/$ | 1.5811 | (0.0038) | $0.0025 | $1.5786 | $0.0323 | 2.05% |
| Yen/$ | 0.9716 | (0.0076) | ($0.0235) | $0.9951 | $0.0301 | 3.02% |
As we have been discussing for some time the market is being driven by the weakness in the dollar resulting in string funds flow into the complex as a hedge against a weak dollar and this possible inflation as well as a result of the strong returns in energy so far this year versus just about everything else (as discussed in yesterday’s report). This will continue until we see a bottoming of the dollar. The Fed is set to meet in two weeks and will most likely decrease interest rates another 25 basis points (1/4%). This has been well worked into the market already and if the economic data due out between now and the meeting indicate that the economy may be bottoming out it is possible that we could see a rebound in the dollar after the Fed meeting and thus a possible downside correction I the energy complex. IN the meantime stay buckled up and watch the financials as closely as you watch normal energy information for clues to the next move.
Currently prices are quietly drifting lower as the dollar strengthens slightly in overnight trading.
| Current Expected Trading Range | | | ||
| | 4/18/08 | Change | Upper | Lower |
| | | From | Resistance | Support |
| | 6:42 AM | Yesterday | | |
| May WTI | $114.06 | ($0.80) | $115.00 | $99.20 |
| May HO | $3.2490 | ($0.0184) | $3.4000 | $2.7100 |
| May RBOB | $2.9273 | ($0.0305) | $3.0000 | $2.5200 |
| May NG | $10.310 | ($0.073) | $10.500 | $8.700 |
| | | | | |
| Euro/$ | 1.5812 | (0.0037) | 1.5818 | 1.5200 |
| Yen/$ | 0.9715 | (0.0077) | 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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