Dominick Chirichella's Addendum to Monday Morning's Energy Overview - Money Continues to flow to Commodities

As discussed in my morning report today I indicated that money continues to flow into the oil sector. To look at this comment in a bit more detail I present the following  chart which compares the net long position of the non-commercial sector (longs minus shorts) for the combined Nymex oil futures markets versus the combination of the CME S&P and mini S&P. This comparison of net long positions in two of the main markets in question shows that as the net long position in the equities market (as measured by the S&P) has actually moved into a net short position the oil complex has moved clearly into a net long position mostly over the same timeframe.

 

It clearly indicates that the buy only investor and the longer term buy side speculative trader has moved from equities into oil as one of the many sources of money flows into oil. Although I have not looked at every possibility of where and why spec money is coming from and moving into oil however this comparison is a good indication of what has evolved over a modest period of time.

 

The average investor has most likely added more oil/commodity risk to their portfolios. I suspect a comparison of equities to most any other major commodity would likely show the same trend as in the following chart.

 

 

 

 

 

Taking the comparison one step further and looking at commodity prices/returns versus equities is shown in the following table. Looking at a comparison of some of the alternative investments available to the investing public and the spec trader in the following table shows not only oil showing strong gains year to date but mostly all of the major commodities traded on US exchanges. Interestingly both corn (driven by ethanol and floods) and cocoa are now showing larger year to date gains than oils! In general we are not only in an oil bull market but a very strong commodity bull market with money flows going into all of the commodity based investments here in the US and abroad. Conversely equities are the worse investment on the block year to date.

 

It should not be a surprise to anyone including the politicians as to why the general public is adding more commodity risk to their portfolios.

 

 

2008 Performance to Date
	6/30/08	29-Dec	Change	% Change
	2008	2007	For YTD	YTD
Spot WTI	$142.28	$95.98	$46.30	48.24%
Spot HO	$3.9652	$2.6494	$1.3158	49.66%
Spot RBOB	$3.5404	$2.4908	$1.0496	42.14%
Spot NG	$13.385	$7.483	$5.902	78.87%
Corn	$757.25	$456.50	$300.75	65.88%
Wheat	$898.50	$889.75	$8.75	0.98%
Soybeans	$1,597.00	$1,201.50	$395.50	32.92%
Cotton	$73.00	$71.21	$1.79	2.51%
Cocoa	$3,188	$2,035	$1,153	56.66%
Live Cattle	100.98	95.03	5.95	6.26%
Copper	389.10	302.30	86.80	28.71%
Gold	933.70	843.20	90.50	10.73%
Silver	17.63	14.77	2.86	19.33%
DJI	11291	13264	(1973)	-14.88%
S&P	1276	1494	(218)	-14.60%
Nasdaq	1848	2151	(304)	-14.12%
Euro/USD	$1.5725	$1.4590	$0.1135	7.78%
Yen/USD	$0.9499	$0.9013	$0.0486	5.39%

 

 

 

The Energy Management Institute operates a fleet of daily, weekly and biweekly energy publications covering various angles of the energy market, including over a decade of natural gas and power price indexing. In addition, EMI provides higher learning for energy professionals with comprehensive, fully accredited, energy education programs from basic to advanced level. It also provides critical business information services and thought leadership in the energy segments of Oil,  Gas, Power, Alternative Fuels, soft commodities and metals.

For more info visit our website (www.energyinstitution.org), email EMI at info@energyinstituion.org or call 888-871-1207

 

 

Dominick A. Chirichella

Energy Management Institute

tel 646-202-1433

fax 801.383.7510

dchirichella@mailaec.com

www.energyinstitution.org

 

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.

 

 

 

Dominick Chirichella's Monday Morning Energy Overview

Another tumultuous week n the energy complex leading to another new all time historical high. Last week was mostly driven by several Geopolitical issues as well as talk of one of OPEC’s members (Libya) cutting production due to a lack of demand for their crude oil. All of this trumped a surprisingly bearish inventory report that saw an unexpected build in crude oil and a continuing deterioration of demand in the US. The war of the bulls & bears continues with the bulls wining out as they have been for many months. Each time the market experiences a modest downside correction it is quickly met with fresh buying making each downside correction shallow and short lived.

 

Last week we also saw the non-commercials (speculative community ) switching gears and adding to their net long positions after a reducing of their net longs that has lasted for well over a month. The new net longs also resulted in another strong push in the EMI composite price of a little over $4/bbl as shown in the following chart. With oil by far still the best investment in town money flows into energy from everywhere, especially from the equities market which is at its lowest level this year will likely continue.  As we have been indicating the bulls are not ready to throw in the towel on this amazing rally that has seen prices increase by almost 50% so far this year.

 

 

 

A few news snippets floating around the wires over the weekend are sure to fuel the rally even further:

 

·         The New Yorker magazine reported that late last year, Congressional leaders agreed to a request from President Bush to fund a major escalation of covert operations against Iran. The article published online Sunday by the magazine cites current and former military, intelligence, and congressional sources and said the operations were described in a highly classified Presidential Finding signed by Bush and are designed to destabilize the country’s religious leadership.

·         The Sunday Telegraph reported on line on Sunday that A former head of Mossad has warned that Israel has 12 months in which to destroy Iran's nuclear program or risk coming under nuclear attack itself. He also hinted that Israel might have to act sooner if Barack Obama wins the US presidential election. Shabtai Shavit, an influential adviser to the Israeli parliament's defense and foreign affairs committee said that time was running out to prevent Iran's leaders from getting the bomb.

 

The above coupled with jabs coming back from Iran like Iran's Revolutionary Guard, who warned that if his country is attacked, Tehran would strike back by barraging Israel with missiles over the weekend will likely energize an already emotionally charged energy market and likely push prices to yet another new all time historical high probably sooner than later in the week. Also on Thursday July 3^rd the European Central Bank will be meeting to discuss their next interest rate move for the EU. Many believe they will increase interest rates. If the building consensus is correct the dollar will get another pounding late in the week when many in the US will already be on their July 4^th holiday period resulting in a less liquid than normal market. If this happens it will be very bullish for oil and in conjunction with the above could be the catalyst to send prices on their way to the next threshold of $150/bbl that has been predicted by many.

 

What many had hoped would be a quiet week leading to the US holiday is already setting up to be anything but a quiet trading week. Stay buckled up volatility will once again be above normal with prices susceptible to huge moves in either direction but most likely with an upside bias this week. The specs should continue to trade from the long side with tight trailing stops while buy side hedgers should continue to employ options type strategies with a short time horizon.

 

Today is expiration day for the Nymex refined products contracts (HO, RBOB, Propane). Currently energy prices are firm while the dollar is trading either side of unchanged.

 

Current Expected Trading Range
	6/30/08	Change	Upper	Lower
		From	Resistance	Support
	7:16 AM	Yesterday
Aug WTI	$142.75	$2.54	$150.00	$130.00
July HO	$3.9915	$0.0849	$4.0000	$2.7100
July RBOB	$3.5595	$0.0583	$3.7500	$3.0000
Aug NG	$13.379	$0.181	$13.500	$11.000
Euro/$	1.57	(0.0012)	1.6000	1.5200
Yen/$	0.9514	0.0062	1.0450	0.9000

 

The Energy Management Institute operates a fleet of daily, weekly and biweekly energy publications covering various angles of the energy market, including over a decade of natural gas and power price indexing. In addition, EMI provides higher learning for energy professionals with comprehensive, fully accredited, energy education programs from basic to advanced level. It also provides critical business information services and thought leadership in the energy segments of Oil,  Gas, Power, Alternative Fuels, soft commodities and metals.

For more info visit our website (www.energyinstitution.org), email EMI at info@energyinstituion.org or call 888-871-1207

 

Dominick A. Chirichella

Energy Management Institute

tel 646-202-1433

fax 801.383.7510

dchirichella@mailaec.com

www.energyinstitution.org

 

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.

 

 

 

Dominick Chirichella's Friday Morning Energy Overview

Another new all time historical high for oil as Libya toys with the market indicating that they may cut production due to a lack of demand. Libya trumped Saudi Arabia with one statement on Thursday that offset the big meeting held in Saudi last Sunday along with all of the energy used to get the many, many participants to fly to the Mid-East.  The Libyan comment resulted in  a much larger reaction in the market than the entire week of anticipating the Saudi meeting and a few days of recycling the outcome (or lack thereof).

 

The market also received some assistance from a weakening dollar after the Fed held pat on interest rates on Wednesday and dollar watchers begin to raise their concerned over the action the European Central Bank will take on July 3^rd. If they raise interest rates it will be the catalyst for another round of dollar selling and thus very bullish for oil.

 

The activity in the market is demonstrative of a market that is just not ready to throw in the towel. Once again we saw the market looking like it may be weakening and heading for a deeper correction and once again the shorts in the energy complex were punished as the bulls came roaring back. The market sentiment remains bullish and the market remains at the highest level of concern over the possibility of a supply shortfall. With the cushion of surplus capacity at the lowest level in history and with inventories hovering near the lower end of normal not only will statements like that of Libya impact the market it will impact the market in a big way.

 

The market has once again put in solid gains for the week with HO and WTI leading the way as shown in the following table. Gasoline & NG followed the rest of the complex higher. Crude oil was driven this week primarily by the weakening dollar and concern over possible supply disruptions…Nigeria, Iran & comments of cutbacks by Libya. On the other hand HO, also the surrogate for diesel on the Nymex, has been driven a bit by the lead of crude oil and by the opportunity to continue to export diesel as a weak dollar makes this move very favorable. Diesel has been a recipient of the weak dollar making the economics of exporting diesel fuel very favorable to markets like Europe. So far this year diesel exports have been running well over last year and the 5 year average. So each time the dollar gets hit or conditions present themselves indicating that the dollar may get another hit HO firms very strongly on the Nymex and in the physical markets in anticipation of export opportunities continuing.

 

Refiners did not fare so well this week as the gasoline crack dragged the whole complex down possibly contributing to the reason why refinery runs showed an unexpected drop of 0.7% this week.

 

		Trading For the Week
	Current	Change	Change	% Change	Weekly	Range % of
	Price	From	for	For	Range	Fri Close
	7:35 AM	Thurs	Week	Week
Aug WTI	$141.64	$2.00	$6.28	4.64%	$9.70	7.17%
July HO	$3.9489	$0.0655	$0.1772	4.70%	$0.2502	6.63%
Jul RBOB	$3.5575	$0.0462	$0.1183	3.44%	$0.2205	6.41%
Aug NG	$13.356	$0.108	$0.243	1.85%	$0.679	5.18%
Aug 08 Cracks
RBOB Crack	$8.023	($0.36)	($1.38)	-14.66%	$1.02	10.85%
HO Crack	$25.016	$0.46	$0.67	2.74%	$0.78	3.20%
321 Crack	$13.631	($0.089)	($0.70)	-5.30%	$0.941	7.09%
Euro/$	1.5683	(0.0013)	$0.0126	0.81%	$0.0321	2.06%
Yen/$	0.9453	0.0036	$0.0076	0.81%	$0.0208	2.22%

 

What to expect next week? Likely more of the same as many participants shorten up their works week in the US due to the upcoming 4^th of July holiday next Friday. As daily activity goes down markets are susceptible to larger than normal intraday moves. Larger than normal moves could pop up next week especially if any of the usual suspects raise their head in the media…Iran, Nigeria, the dollar, etc. Volatility will once again be very high and all signs indicate that the probability the market will make another new historical high next week is increasing. Many prognosticators have been forecasting that oil will hit the $150/bbl level in 2008. At the rate the emotions and money are flowing into the market this threshold is likely to be hit next week especially if the European Central Bank does raise interest rates resulting in a negative impact on the dollar. However, the market is very much ahead of itself as of this writing and it would not be a big surprise to see negative numbers on the screen before the end of today’s trading session.

 

Currently the market is continuing to make new all time historical highs as of this writing Even as the dollar is holding steady.

 

Current Expected Trading Range
	6/27/08	Change	Upper	Lower
		From	Resistance	Support
	7:35 AM	Yesterday
Aug WTI	$141.66	$2.02	$150.00	$130.00
July HO	$3.9489	$0.0655	$4.0000	$2.7100
July RBOB	$3.5575	$0.0462	$3.7500	$3.0000
Aug NG	$13.366	$0.118	$13.500	$11.000
Euro/$	1.5683	(0.0013)	1.6000	1.5200
Yen/$	0.9453	0.0036	1.0450	0.9000

 

 

The Energy Management Institute operates a fleet of daily, weekly and biweekly energy publications covering various angles of the energy market, including over a decade of natural gas and power price indexing. In addition, EMI provides higher learning for energy professionals with comprehensive, fully accredited, energy education programs from basic to advanced level. It also provides critical business information services and thought leadership in the energy segments of Oil,  Gas, Power, Alternative Fuels, soft commodities and metals.

For more info visit our website (www.energyinstitution.org), email EMI at info@energyinstituion.org or call 888-871-1207

 

Dominick A. Chirichella

Energy Management Institute

tel 646-202-1433

fax 801.383.7510

dchirichella@mailaec.com

www.energyinstitution.org

 

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.