Is the long awaited correction in the early stages or is it just the same short & shallow move to the downside?. As we have been discussing in this report for several months the market is overvalued and even with the last two down days the market remains overvalued. The bulls may be finally running out of reasons to support the overly bullish market sentiment and the surge in prices. There is no single reason as to why prices declined strongly yesterday and have continued the decline in overnight trading. However, there is no good single reason as to why prices have reached the levels in the mid- $130’s/bbl. The entire move to the upside has been in anticipation of an event. The event has not happened and supply remains very comfortable. On the other hand with the current high price environment demand is beginning to be impacted. Vehicle miles driven in the US is down since March. Several forecasters have estimated the number of people driving long distances over the past holiday weekend is down. In addition the IEA is forecasting a net reduction in demand this year for the US, the first such reduction in 17 years.
So where do we go from here? We have seen strong moves to the downside a number of times this year. All have been met with quick dip buying by the spec and investment community. All corrections so far have been short and shallow. It is way too early to suggest anything different is happening so far.
Tomorrow we get another snapshot of inventories. The very early estimates are calling for a decline in crude due to an increase in refinery runs, a small decline in gasoline and a seasonal build in distillate. A pretty neutral inventory assessment. However, all eyes will be focused on the weekly demand figures to see if the forecasters projection of a demand retracement is starting to come about. The weekly demand figures released by the EIA are very erratic and looking at the 4 week average is more representative of a trend. We have seen some demand decline versus last year in these numbers a few times this year.
Also we have been projecting that a major downside correction in oil will likely be led by a strong firming of the US dollar. So far this week we have seen a slight strengthening of the dollar. It is heading in the right direction but it is still by no means surging to the upside. Again we may be in the early stages of a dollar correction which would then result in downside pressure on oil as the spec & investment community shed long side/inflation trades in oil.
As we have indicated we are not ready to declare this the start of a major correction rather we remain in the look and see mode for the moment. However, we raise the caution flag for the spec side to buckle up and use tight trailing stops. For buy side hedgers continue to use options spread strategies for short term hedging. Remain out of the long dated market.
Not that it impacts price…but Indonesia is opting out of OPEC today as they are now a fully bona fide net importer of oil as their demand continues to grow due to subsidized oil prices.
Currently energy prices are on the defensive as the dollar firms slightly.
| Current Expected Trading Range | | | ||
| | 5/28/08 | Change | Upper | Lower |
| | | From | Resistance | Support |
| | 6:11 AM | Yesterday | | |
| Jul WTI | $127.14 | ($1.71) | $135.00 | $99.20 |
| June HO | $3.7720 | ($0.0272) | $4.0000 | $2.7100 |
| June RBOB | $3.3481 | ($0.0349) | $3.5000 | $2.5200 |
| June NG | $11.730 | ($0.071) | $12.000 | $8.700 |
| | | | | |
| Euro/$ | 1.5676 | (0.0011) | 1.6000 | 1.5200 |
| Yen/$ | 0.9562 | (0.0038) | 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
This message and any attachments relate to the official business of the Energy Management Institute ("EMI") and are proprietary to EMI. This e-mail transmission may contain information that is proprietary, privileged and/or confidential and is intended exclusively for the person(s) to whom it is addressed. Any use, copying, retention or disclosure by any person other than the intended recipient or the intended recipient's designees is strictly prohibited. If you are not the intended recipient, you are hereby notified that any disclosure, copying, distribution or the taking of any action in reliance on this information is strictly prohibited. If this message has come to you in error, please immediately notify the sender by telephone or return e-mail and delete the original transmission and its attachments without reading or saving in any manner. Thank you.
No comments:
Post a Comment