AS the week comes to an end it has been all we forecasted in the beginning of the week. We certainly had exceptional volatility (look at yesterday’s trading range of over $6/bbl for crude, about $0.09/gal for HO and over $0.12/gal for RBOB---just one trading session). On top of that we made a new historical high on the week and we saw another bearish inventory report being discounted and reversing the trend within our normal 24 hour pattern. Just another typical week in the energy complex as spec/investment flow and algorithmic trading rule the roost.
Really nothing different this week than any of the previous several months. The fundamentals are improving every week, demand is slowing not just in the US but in other markets, the normal Geopolitical hotspots that have been in the market for several years are still circulating in the market and the dollar is slowing forming a bottom. What this all translates to is bearish everything except the market sentiment which remains decidedly bullish.
Until the sentiment changes the market will not move significantly from the current lofty and overvalued levels. However we do believe that the probability of a significant downside correction is increasing as demonstrated by the absolute price change for the week as shown in the following table. After all of the above activity this week the oils are barely showing a gains (as of this writing) while NG is now basically unchanged. The refining sector held its own this week and is a sign that we can expect to see runs increase further in next week’s EIA inventory report.
| | | | | | | |
| | Current | Change | Change | % Change | Weekly | Range % of |
| | Price | From | for | For | Range | Fri Close |
| | 7:22 AM | Thurs | Week | Week | | |
| June WTI | $126.26 | $2.14 | $0.30 | 0.24% | $6.23 | 4.95% |
| June HO | $3.6570 | $0.0346 | $0.0210 | 0.58% | $0.1631 | 4.49% |
| June RBOB | $3.2120 | $0.0462 | $0.0108 | 0.34% | $0.1349 | 4.21% |
| June NG | $11.530 | $0.131 | ($0.007) | -0.06% | $0.653 | 5.66% |
| June 08 Cracks | | | | | | |
| RBOB Crack | $8.644 | ($0.20) | $0.15 | 1.81% | $0.61 | 7.17% |
| HO Crack | $27.334 | ($0.69) | $0.58 | 2.18% | $5.24 | 19.57% |
| 321 Crack | $14.812 | ($0.360) | $0.29 | 2.03% | $2.136 | 14.71% |
| | | | | | | |
| Euro/$ | 1.5439 | 0.0009 | ($0.0013) | -0.08% | $0.0205 | 1.33% |
| Yen/$ | 0.9564 | 0.0002 | ($0.0169) | -1.74% | $0.0257 | 2.64% |
This morning the market is gaining some momentum on concern that China may be in the market to buy diesel fuel for electricity generation after the earthquake damaged some traditional generating capacity. Again I believe this is another typical over reaction as a result of the strong bullish market sentiment. Yes China may need some diesel and or resid for power generation as several coal mines have been temporarily closed due to the quake but do not forget demand for oil products and electricity are going to be lower than normal as many people remain displaced form the quake and in shelters. SO demand reduction may more than offset the need for incremental diesel or resid for power generation.
Currently the energy complex is higher in overnight trading while the dollar is about unchanged so far.
| Current Expected Trading Range | | | ||
| | 5/16/08 | Change | Upper | Lower |
| | | From | Resistance | Support |
| | 7:22 AM | Yesterday | | |
| June WTI | $126.28 | $2.16 | $130.00 | $99.20 |
| June HO | $3.6570 | $0.0346 | $4.0000 | $2.7100 |
| June RBOB | $3.2120 | $0.0462 | $3.2500 | $2.5200 |
| June NG | $11.530 | $0.131 | $12.000 | $8.700 |
| | | | | |
| Euro/$ | 1.5439 | 0.0009 | 1.6000 | 1.5200 |
| Yen/$ | 0.9564 | 0.0002 | 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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