From a fundamental perspective yesterday was not a good day for the bulls. The UK refinery strike came to an end and the Forties crude oil field is in restart mode. The Nigerian labor strike with Exxon may be nearing an end as talks to settle the 7 day dispute continue and finally the EIA released a bearish oil inventory snapshot as shown in the recap below.
Both crude oil and distillate built noticeably more than expected while gasoline declined within the expectations and did what it normally does this time of the year. After the dust settled we still find gasoline stocks 18 million barrels above last year and almost 9 million barrels above the normal 5 year average. Gasoline is well supplied and the likelihood of any gasoline supply problems as we enter the upcoming driving season is becoming more and more remote. On the other hand the rest of the complex remains well within the normal operating range (as measured by the 5 year average) and thus indicative of a market that is comfortably supplied and not supportive of the current over-valued price environment.
| Oil Inventory | | 5/1/08 | | |
| Mil of Bbls | | | | |
| | Current | Change from | Change from | Change from |
| | Inv. | Last Week | Last Year | 5 Year |
| | | | | |
| Crude Oil | 319.9 | 3.8 | (15.7) | 1.2 |
| Gasoline | 211.1 | (1.5) | 18.0 | 8.6 |
| Distillate | 105.8 | 1.1 | (11.3) | (1.2) |
| Refinery % | 85.4% | -0.2% | -2.9% | -2.9% |
In addition to a fundamental view that does not support the current market sentiment the Fed lowered interest rates by ¼% as expected and did not signal a strong sign that they would definitely continue to lower rates. Rather they only indicated they are leaving the rate cut door open if needed. Most in the market do not believe it will be needed as the risk of inflation seems to be gaining more momentum than a deepening of the downturn in the US economy. Although the UD dollar has not surged forward as of yet it certainly does not have the support to strongly weaken from current levels at this point in time. The bias in the dollar is likely to be toward the firming side and thus bearish for oil.
Conditions are starting to come together that are suggesting that the energy complex (as well as the rest of the commodity complex) have a decent probability of entering a significant retracement to the downside. As we have discussed on many occasions in our morning reports the entire energy complex remains very over valued and susceptible to a downside correction to possibly as low as $90 to $100/bbl over the next month or so. At this point in time and with the signals emerging in the market we believe the market has a much higher probability of going lower before it once again attempts to make any major moves to new historical highs.
Currently prices are lower for oil and firmer for the US dollar.
| Current Expected Trading Range | | | ||
| | 5/1/08 | Change | Upper | Lower |
| | | From | Resistance | Support |
| | 7:05 AM | Yesterday | | |
| June WTI | $113.20 | ($0.26) | $120.00 | $99.20 |
| June HO | $3.1480 | ($0.0100) | $3.4000 | $2.7100 |
| June RBOB | $2.8995 | ($0.0068) | $3.1500 | $2.5200 |
| June NG | $10.860 | $0.017 | $11.000 | $8.700 |
| | | | | |
| Euro/$ | 1.5506 | (0.0103) | 1.6000 | 1.5200 |
| Yen/$ | 0.9637 | (0.0013) | 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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