Another week, another set of new historical highs. This morning WTI broke the $125/bbl level as prices end the week the same way they started the week…higher. This is the 6th day in a row of higher prices. Nothing is new in the way of drivers or reasons, same old, same old reasons for the surge in prices. As discussed in yesterday morning’s report we view the market as solidly in the hand of the spec and investment communities as technical’s and market sentiment remain bulls and more and more money flows into the oil patch. Oil prices continue to be disconnecting further and further from the fundamentals and closer and closer to investor & speculative demand for long positions in the complex.
On the week prices increased across the board. The only exception was the RBOB gasoline crack which declined on the week. Heating oil led the market higher with crude oil a close second. Gasoline continued to lag the market as it has throughout most of the move higher in 2008. Why? Very well supplied gasoline situation just two weeks before the start of the so called “summer driving season”. Needless to say the market is overreacting to the latest small decline in heating oil/distillate stocks as this is just the beginning of the normal seasonal building period that will last until early December. In addition refinery runs are likely to increase about 10% over the next month or so as the maintenance season comes to an end and as refinery margins increase. Although the gasoline crack narrowed a bit this week refiners fared well when measured by the widely watched 3-2-1 crack spread which increased by over 16% on the week.
NG followed the oil complex higher on the week even though NG stocks built strongly on the week. The market is now in the shoulder period, a period where heating demand is over and air conditioning demand has not yet started. As such NG is very susceptible to following the ups and downs of the oil complex during this period.
On the currently front we have seen the dollar weaken a bit on the week in spite of indications that the Fed may be done cutting interest rates (bearish for dollar/bullish for oil) for the time being. We will have to watch this situation closely as it is one of the primary catalysts that fuels the investment flow into the energy complex. Investors view the weak dollar/rising oil scenario as a hedge against inflation by investing in oil (and other commodities).
| | | Trading For the Week | | | ||
| | | | | | | |
| | Current | Change | Change | % Change | Weekly | Range % of |
| | Price | From | for | For | Range | Fri Close |
| | 7:19 AM | Thurs | Week | Week | | |
| June WTI | $125.68 | $1.99 | $9.36 | 8.05% | $9.58 | 8.24% |
| June HO | $3.5960 | $0.0862 | $0.3773 | 11.72% | $0.4100 | 12.74% |
| June RBOB | $3.1808 | $0.0430 | $0.2144 | 7.23% | $0.1237 | 4.17% |
| June NG | $11.422 | $0.159 | $0.644 | 5.98% | $0.639 | 5.93% |
| June 08 Cracks | | | | | | |
| RBOB Crack | $7.914 | ($0.18) | ($0.36) | -4.30% | $1.65 | 19.95% |
| HO Crack | $25.352 | $1.63 | $6.49 | 34.38% | $7.30 | 38.67% |
| 321 Crack | $13.668 | $0.415 | $1.90 | 16.17% | $3.513 | 29.86% |
| | | | | | | |
| Euro/$ | 1.543 | 0.0055 | $0.0044 | 0.29% | $0.0309 | 2.01% |
| Yen/$ | 0.9733 | 0.0099 | $0.0210 | 2.21% | $0.0253 | 2.66% |
As we have been indicating we expect the pattern of high volatility, buying dips and thus higher prices to prevail at least for the next few weeks unless something decidedly bearish enters the market. We do not think a bearish fundamental element will be enough to reverse the upward trend. We think it will have to be financial, i.e. a strong recovery of the US dollar (possible) or a strong indication that the US & world economies are really weak (not likely). The market sentiment is so bullish that whatever emerges around the media over the next few weeks will have to be so bearish that the market will not be able to ignore it. I am not sure if anything of that nature will emerge before we make new historical highs. The Goldman Sacs prediction of $150 to $200/bbl this year may happen sooner than later if the investment flow continues at its current pace into the energy complex.
In the meantime stay buckled up. From the trading side continue to buy dips with tight stops. From the purchasing hedging side only employ options strategies to protect upside price risk so as to participate in the downside if a sudden correction does occur in the near term.
Currently prices are higher.
| Current Expected Trading Range | | | ||
| | 5/9/08 | Change | Upper | Lower |
| | | From | Resistance | Support |
| | 7:20 AM | Yesterday | | |
| June WTI | $125.60 | $1.91 | $130.00 | $99.20 |
| June HO | $3.6000 | $0.0902 | $3.4000 | $2.7100 |
| June RBOB | $3.1808 | $0.0430 | $3.1500 | $2.5200 |
| June NG | $11.423 | $0.160 | $11.500 | $8.700 |
| | | | | |
| Euro/$ | 1.543 | 0.0055 | 1.6000 | 1.5200 |
| Yen/$ | 0.9734 | 0.0100 | 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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