The market is back on the defensive this morning after a bit of a recovery yesterday afternoon. The oil complex still remains lower on the week so far. There is lots of noise circulating around the airwaves about the current energy crisis. The snippets impacting market direction are currently confined to Chevron averting a strike in Nigeria thus avoiding an additional shut-in of production and yesterday’s oil inventory report which we will discuss in a moment. The rest is pretty much noise. But it is good noise in the respect that the debate over how to solve the energy crisis is beginning to get on the radar of the general public. I hope over the next month or so an accurate representation of the real problem and the optimum portfolio of solutions will be clear to the consumers. We have been discussing the reasons and the portfolio of solutions for some time in our morning report. None of the noise items are currently having any impact on the current price of oil.
Back to inventories. Yesterday’s report was interesting as we saw two surprises… a modest draw in gasoline inventories (versus an expected build) and a larger than expected build in distillate. Crude oil was within the expectations as refinery runs quickly approach the 90% utilization level. Crude oil stocks are more closer to the lower end of normal while refined products (gasoline & distillate) are comfortable and indicative of a market that is not likely to experience any supply interruptions any time soon.
On the ever important demand side of the equation we saw a modest decline in gasoline consumption due to high prices and a small increase in distillate. Overall total demand bumped up on the week. However, the more interesting aspect of the demand analysis is the comparison of these same categories to last year and to the 5 year average for the same week each year. As shown in the table below total demand is running below both last year and the 5 year average and so is gasoline. Distillate is only below last year’s level. Demand below last year and the 5 year average is very significant and indicative of the impact higher prices are having on consumption habits of business and individuals in the US. This is bearish for oil and if it continues (which I believe it will) will go a long way to beginning to cap the current high price environment.
| Oil Inventory | | 6/19/08 | | |
| Mil of Bbls | | | | |
| | Current | Change from | Change from | Change from |
| | Inv. | Last Week | Last Year | 5 Year |
| | | | | |
| Crude Oil | 301.0 | (1.2) | (48.4) | (22.5) |
| Gasoline | 208.9 | (1.2) | 5.6 | (0.5) |
| Distillate | 116.6 | 2.6 | (6.1) | 0.9 |
| Refinery % | 89.3% | 0.7% | 1.7% | 1.7% |
| Demand | | | | |
| | | | | |
| Total | 20456 | 213 | (61) | (173) |
| Gasoline | 9251 | (160) | (340) | (30) |
| Distillate | 4070 | 45 | (16) | 78 |
Most of the oil drivers are pointing to the downside at the moment. The dollar is back on the positive side, yesterday’s snapshot of fundamentals was bearish, a strike was averted in Nigeria and the Saudi meeting is still in front of us. We think the market will have a lot of difficulty from this point in making another pass at breaching the all time high made earlier in the week. We see prices trading in a volatile range with a bias for the downside for the rest of the week. The market will start next week based on any unusual or unexpected comments that come from Sunday’s meeting in Saudi Arabia. The most significant outcome from the meeting…the Saudi’s increasing production has been well circulated in the market all week. As I said earlier in the week the most likely outcome of this meeting will be for both side to agree that the price of oil is too high, some will say it’s the speculators while others will zero in on the real problem the deterioration in the worldwide supply and demand balance for oil. We do not expect the outcome of this meeting to be a major catalyst for price direction in the short term.
Currently oils are lower while the dollar is firming.
| Current Expected Trading Range | | | ||
| | 6/19/08 | Change | Upper | Lower |
| | | From | Resistance | Support |
| | 8:07 AM | Yesterday | | |
| Jul WTI | $135.76 | ($0.92) | $140.00 | $99.20 |
| July HO | $3.8340 | ($0.0260) | $4.0000 | $2.7100 |
| July RBOB | $3.4550 | ($0.0117) | $3.5000 | $2.5200 |
| July NG | $13.303 | $0.093 | $13.500 | $11.000 |
| | | | | |
| Euro/$ | 1.5404 | (0.0054) | 1.6000 | 1.5200 |
| Yen/$ | 0.9313 | (0.0004) | 1.0450 | 0.9000 |
Dominick A. Chirichella
Energy Management Institute
tel 646-202-1433
fax 801.383.7510
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