After just one trading session this week the energy market has traded in a very erratic and highly volatile pattern already. New historical highs were made on Monday morning only to quickly change course and ultimately finish lower on the day. None of the normal drivers changed it just seems to be various sectors of the market are interpreting the information a bit differently. From a technical trading perspective when a market makes a new historical high only to close lower on the day is indicative of a market that is poised for a downside correction at least one typical of the types of corrections we have seen of late…short and shallow.
The primary uptrend support for oil prices… a weak dollar seemed to be the primary catalyst in early trading but the market moved more of its focus later in the session to the upcoming meeting in Saudi Arabia and the Saudi’s intention to increase production as well as what this week’s oil inventories will show on Wednesday. Early indications are calling for a modest decline in crude oil of about 1.5 million barrels as refinery runs move higher due to more favorable refinery margins. This likely resulted in an increase of about 1 million barrels of distillate and 1 million barrels of gasoline. We would expect to see demand in the US to continue to trend lower. Although last week’s numbers showed steady demand one has to look more closely at the trendline which, as shown in the chart at the end of the email, is clearly in a downtrend. As we have been discussing in our daily report high prices are impacting demand in developing countries with the US leading the way. We expect this pattern to continue when the new numbers are released tomorrow morning.
So what will be the driver du jour today? The rest of the week? Have we seen the highs for the week? Tough questions to answer with a high degree of confidence due to the erratic pattern that the market is trading in. But what is an assessment without an opinion? I believe the market sentiment has made a slight adjustment over the last week or so to a bit less bullish. As such without the emergence of something very bullish and/or another major move to the downside for the dollar I expect prices to struggle for the rest of this week in making new highs and holding above those highs for a sustained period of time. My short term forecast is based on:
· The anticipation of the Saudi meeting. Just the thought of bringing producers & consumers together has a bit of a bearish atmosphere.
· The anticipation of an increase in Saudi production . Although I believe there is no imminent demand for this oil I do believe the Saudi’s are trying to make the point that fundamentals are well supplied and it is the specs driving the market. In any event it is also serving a purpose of capping prices for the moment.
· The expectation of another bearish US oil inventory report.
· Cautiousness that the dollar may remain in its firming pattern. Although we saw a sell-off of the dollar during Monday’s trading the dollar versus the Euro (and most other major currencies) is hovering near upside resistance if breached could result in a significant upside move for the dollar and major pressure on oil prices.
Buckle up as the wild ride continues. Currently prices for oil are on the defensive as the dollar trades either side of unchanged.
| Current Expected Trading Range | | | ||
| | 6/17/08 | Change | Upper | Lower |
| | | From | Resistance | Support |
| | 7:00 AM | Yesterday | | |
| Jul WTI | $133.09 | ($1.52) | $140.00 | $99.20 |
| July HO | $3.7902 | ($0.0372) | $4.0000 | $2.7100 |
| July RBOB | $3.4070 | ($0.0309) | $3.5000 | $2.5200 |
| July NG | $12.959 | $0.026 | $13.000 | $11.000 |
| | | | | |
| Euro/$ | 1.543 | 0.0012 | 1.6000 | 1.5200 |
| Yen/$ | 0.9293 | (0.0004) | 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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