After a modest level of profit taking selling on Monday the market is steady and slightly higher in overnight trading. Not much new except the International Energy Agency (IEA) released its Monthly Oil Market report. The EIA will release their Short Term Energy Outlook later today). The IEA once again reduced their global demand forecast a bit from last month’s report with the bulk of the demand reduction coming from mostly developed countries with few signs of demand reduction in developing nations like China. The main highlights from the report follow:
· Global oil product demand is expected to average 86.8 mb/d in 2008, 80 kb/d below last month’s estimate, following the reduction of price subsidies in several non-OECD countries. Global growth is cut even more steeply by 230 kb/d to +0.9% or +800 kb/d when historical upward revisions to 2006 and 2007 data are factored in.
· Global oil supply rebounded by 490 kb/d in May to average 86.6 mb/d, lifted by higher OPEC crude supply. The rise however comes after extensive downward revisions to 1Q08 non-OPEC production and lower biofuels and NGLs for the rest of this year. Despite this, a recovery in non-OPEC output is forecast for the second half of 2008.
· OPEC May crude supply averaged 32.3 mb/d, 395 kb/d above April, on higher output from Saudi Arabia, Nigeria, Angola and with Iraqi output at a six-year high. Higher output and field commissioning delays push effective spare capacity below 2 mb/d. The call on OPEC crude and stock change in 2008 is revised up 300 kb/d to 31.6 mb/d.
· OECD oil stocks fell 8.1 mb in April to 2,562 mb, in stark contrast to the typical build. An 11 mb draw in US gasoline stocks removed the large 1Q08 surplus while crude and distillate cover tightened in Europe and North America. Total oil cover remains above average at 53.4 days.
· Global refinery throughput increased by 0.2 mb/d in May to 73.3 mb/d, as strong US, Russian and Middle Eastern crude runs more than offset the decline in Chinese and European throughputs. Non-OECD regions could also drive 3Q08 global crude throughputs to 75.7 mb/d, 2.1 mb/d higher than 2Q08 and 1.0 mb/d higher than 3Q07.
Overall the report is being viewed as neutral in the market place with many participants already under the belief that demand is declining. Also although inventories showed a decline in April (mostly due to a destocking of the large US gasoline surplus) total oil coverage remains above average at 53.4 days. Demand is going down, inventories are well within normal operating range and global oil supply has increased. A description of a bearish report but one the market is again discounting due to the exceptionally strongly bullish market sentiment. It is likely that today’s EIA oil report will be consistent with IEA report and also present a snapshot of fundamentals that are bearish to neutral at best. It is equally likely that he market will discount that report also.
Another anomaly so far today is the firming US dollar. The dollar, after starting out weaker on Monday morning, has been trending higher ever since. It obviously contributed to yesterday’s selling but has not resulted in as strong of a downside reaction in oil then it did in the opposite direction on Thursday & Friday. In fact the dollar is stronger than it was on Thursday afternoon when all of the dollar bashing/oil surge began. As of now the dollar is firming, the IEA report is bearish and yet prices are still firm(so far). There should be more follow-up selling in oil and if nothing else materializes this morning and the dollar gains hold I would expect to see lower oil prices before the end of the day.
Currently oil and the dollar are firm.
| Current Expected Trading Range | | | ||
| | 6/10/08 | Change | Upper | Lower |
| | | From | Resistance | Support |
| | 6:59 AM | Yesterday | | |
| Jul WTI | $134.64 | $0.29 | $140.00 | $99.20 |
| July HO | $3.8936 | $0.0166 | $4.0000 | $2.7100 |
| July RBOB | $3.4075 | $0.0135 | $3.5000 | $2.5200 |
| July NG | $12.582 | ($0.022) | $13.000 | $11.000 |
| | | | | |
| Euro/$ | 1.5492 | (0.0154) | 1.6000 | 1.5200 |
| Yen/$ | 0.9357 | (0.0070) | 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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