As we said on Monday the market would make new historical highs at some point this week. We did on Tuesday as the market completely ignored all of the bearish points in the IEA monthly oil report and only focused on a decline in distillate inventories. It completely ignored another projected reduction in demand for 2008 as well as a reduction in the call for OPEC crude for 2008. The market has also been ignoring the fact that Iran has stored about 25 million barrels of oil in floating storage (vessels) in the Gulf due to lack of demand for the crude as well as the building surplus of North Sea crudes.
So yes the market sentiment is still decidedly bullish as defined by a market that continues to discount anything bearish and overly embrace anything bullish even if it is insignificant. Today we get another snapshot of US inventories as summarized in the following table. As shown the market is expecting builds across the board with crude oil leading the way. Crude oil stocks are expected to build by at least 2 million barrels resulting in another narrowing of the year on year deficit and widening of the surplus versus the 5 year average. Gasoline is expected to continue to show a significant surplus versus last year of about 17 million barrels with just two weeks to go before the start of the so called summer driving season. Distillate is beginning to enter the normal seasonal building period which will last until early December.
If the actual come in as expected we would view the report as bearish. How the market views the report is a whole other story. With a bullish market sentiment and if the pattern of previous weeks continues the market will initially sell-off a bit only to abruptly reverse itself within 24 hours.
| Projections | | 5/14/08 | |
| | | | |
| | Current | Change from | Change from |
| | Projections | Last Year | 5 Year |
| mmbls | | vs. Proj. | vs Proj. |
| Crude Oil | 2.0 | (14.6) | 6.9 |
| Gasoline | 0.5 | 17.1 | 7.1 |
| Distillate | 1.0 | (13.0) | (3.4) |
| Ref. Runs% | 0.2% | -4.3% | -7.3% |
| Change Level | 85.2% | 89.5% | 92.5% |
In addition to the above mentioned bearish points the dollar is continue to firm which should begin to add pressure on the oil market. Our recommendations and views of the market still remain the same…overvalued price environment and overdue for a significant downside correction.
Currently prices are mixed.
| Current Expected Trading Range | | | ||
| | 5/14/08 | Change | Upper | Lower |
| | | From | Resistance | Support |
| | 7:17 AM | Yesterday | | |
| June WTI | $125.29 | ($0.51) | $130.00 | $99.20 |
| June HO | $3.6987 | ($0.0002) | $4.0000 | $2.7100 |
| June RBOB | $3.1880 | ($0.0120) | $3.2500 | $2.5200 |
| June NG | $11.729 | $0.307 | $12.000 | $8.700 |
| | | | | |
| Euro/$ | 1.5417 | (0.0037) | 1.6000 | 1.5200 |
| Yen/$ | 0.9526 | (0.0035) | 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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