The market is staring the week on a mixed note. Overnight WTI made a new high above $120/bbl on concerns over the Grangemouth Refinery strike which has led to the closure of the UK Forties crude oil production pipeline operation and the ongoing strike in Nigeria. The refinery strike is expected to be over tomorrow with Forties crude oil operations beginning within 24 hours after the refinery strike is over. The Nigerian situation is still fluid with no sign that the strike will be over quickly.
Neither one of these situations is enough to create any kind of shortage, especially with the IEA watching the situation closely and ready to pull their sharing trigger if necessary. IEA member countries have about 1.5 billion barrels of oil in strategic petroleum reserves around the world with US hold about 700 million barrels of those reserves. So if a shortage does materialize it will be quickly solved with SPR oil from all over the world.
That said the market sentiment remains bullish and until that sentiment changes prices will remain firm and continue to have an upside bias. The other catalyst keeping prices firm is the weak US dollar. We saw some firming last week. IN fact the US dollar versus the Euro had its best weekly day performance in months. It is still unclear as to whether last week’s dollar firming was nothing other than a short covering rally or the start of a directional change in the trend. Time will provide the answer that that question.
The US Federal Reserve (FOMC committee) meets this week and is widely expected to cut interest rates another ¼% (25 basis points). This has been priced into the market. Anything more aggressive would be met with a strong sell-off of the dollar. Many also believe that this may be the last cut by the Fed until the fall. The thinking is they will wait and see how the economy perks up as rebate checks start to be distributed today. Also some of the economic numbers have not been as bad as expected of late and may be signaling that the US economy will turn the corner sooner than later. If so inflation starts to become a worry of the FED, especially with high oil and commodity prices in general. If that turns out to be the case not only would the Fed stop cutting rates down the road (late in the year at the earliest) they would begin the process of raising rates to offset any major inflation problems. All of that ultimately becomes bullish for the dollar and this bearish for oil and other commodities. In fact the head of OPEC indicated overnight that he felt a 10% firming of the dollar will result in a $40/bbl decrease in the price of oil.
We do not believe the market is ready to throw in the bullish towel just yet. But this week could provide some interesting signals after the Fed meets and after the market gets another snapshot of US inventories mid-week. Currently energy prices are mixed while the dollar gives back some of last week’s gains.
| Current Expected Trading Range | | | ||
| | 4/28/08 | Change | Upper | Lower |
| | | From | Resistance | Support |
| | 7:41 AM | Yesterday | | |
| June WTI | $119.03 | $0.51 | $120.00 | $99.20 |
| May HO | $3.2986 | ($0.0042) | $3.4000 | $2.7100 |
| May RBOB | $3.0500 | ($0.0037) | $3.1500 | $2.5200 |
| May NG | $11.067 | $0.104 | $11.000 | $8.700 |
| | | | | |
| Euro/$ | 1.5618 | 0.0056 | 1.6000 | 1.5200 |
| Yen/$ | 0.9599 | 0.0000 | 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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