Short trading week and possibly the beginning of the long awaited correction to the downside. With the exception of gasoline this is the first down week in some time. For the first time in many weeks the market sentiment and momentum to the upside may be changing. The most interesting aspect of this energy trading week has been the lack of any hype of support to push prices higher. Even the weekly inventory report which showed a surprise decline in crude oil stocks was quickly rationalized as a result of a temporary closure last week of the Houston Ship channel thus causing a few less tankers to discharge their cargo. In fact the major feature of the week is clearly the firming of the dollar and the market becoming further convinced that supply is normal and demand may be in a decline mode due to high prices.
As shown in the following table the HO and crude oil and the heat crack are the biggest losers on the week while the gasoline crack and the dollar (versus the Euro & Yen) are the leaders of the pack. Volatility has been exceptionally high as some of the market bulls seemed to be shedding their long only mentality. It will be interesting to see the net spec positions and the flow of funds into the big index funds over the next several weeks to determine if the market is beginning to believe that the peak in prices may be in past for the moment. For what it is worth retail gasoline prices normally (not every year) peak sometime in late May or into June and then head south for the rest of the summer.
As we have indicated many times in this report the dollar is a strong indicator of what is to come in the energy complex. As the dollar firms oil prices will retreat. This week has once again demonstrated that relationship. The dollar gained some fundamental support this week when the US GDP figures showed a surprise 0.9% growth in the 1st qtr versus an expectation of only 0.6%. It also is suggesting to the recessionary crowd that the downturn in the US economy may not be as deep as some projected nor as long lived. It also supports some of the comments coming from FED officials that inflation may be more of a risk going forward and thus raising interest rates may be the next event of the FED sometime in the second half of the year. All of this bodes well for the dollar and should begin to change the negative dollar sentiment. In addition the technical pattern of the dollar versus most major currencies is clearly showing the signs of bottoming out and possibly getting positioned for a strong move to the upside.
Watch the dollar closely over eh next few weeks as a firming dollar will clearly result in lower oil prices.
| | | Trading For the Week | | | ||
| | | | | | | |
| | Current | Change | Change | % Change | Weekly | Range % of |
| | Price | From | for | For | Range | Fri Close |
| | 6:56 AM | Thurs | Week | Week | | |
| July WTI | $125.89 | ($0.73) | ($6.30) | -4.77% | $8.98 | 6.79% |
| July HO | $3.6259 | ($0.0626) | ($0.2397) | -6.20% | $0.3485 | 9.02% |
| June RBOB | $3.4104 | $0.0062 | $0.0144 | 0.42% | $0.1800 | 5.30% |
| July NG | $11.525 | $0.051 | ($0.456) | -3.81% | $0.779 | 6.50% |
| June 08 Cracks | | | | | | |
| RBOB Crack | $14.163 | $1.04 | $4.98 | 54.25% | $3.14 | 34.14% |
| HO Crack | $27.712 | ($1.32) | ($3.43) | -11.01% | $6.01 | 19.30% |
| 321 Crack | $18.634 | $0.262 | $2.21 | 13.43% | $4.084 | 24.86% |
| | | | | | | |
| Euro/$ | 1.5506 | 0.0009 | ($0.0267) | -1.69% | $0.0566 | 3.59% |
| Yen/$ | 0.9492 | 0.0009 | ($0.0220) | -2.27% | $0.0253 | 2.61% |
We do expect next week to bring more of the same insofar as volatility is concerned. It is still a bit too early to declare that the top of the market is definitely in place but it is showing the early signs that it may be. We do expect a bit of short covering today and do not expect prices to move precipitously lower until next week sometime. Although the EIA weekly report did not show a reduction in demand this week we do expect to see it in next week’s number. The EIA data are based on primary (wholesale ) inventory locations. This week’s numbers (basis last Friday) were reflective of a normally big pull on gasoline inventories as many retailers filled out their retail gasoline stations in preparation for the holiday driving crowd. If indications like the MasterCard weekly report which monitors purchases at the retail level suggested demand was down we would likely see that pattern emerge in the EIA report released this coming Wednesday. In addition we should expect to see crude oil stocks recover a bit. An overall bearish weekly report.
Currently prices are mixed in light overnight trading.
| Current Expected Trading Range | | | ||
| | 5/30/08 | Change | Upper | Lower |
| | | From | Resistance | Support |
| | 6:56 AM | Yesterday | | |
| Jul WTI | $125.85 | ($0.77) | $135.00 | $99.20 |
| June HO | $3.6259 | ($0.0626) | $4.0000 | $2.7100 |
| June RBOB | $3.4104 | $0.0062 | $3.5000 | $2.5200 |
| July NG | $11.525 | $0.051 | $12.000 | $8.700 |
| | | | | |
| Euro/$ | 1.5506 | 0.0009 | 1.6000 | 1.5200 |
| Yen/$ | 0.9492 | 0.0009 | 1.0450 | 0.9000 |
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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