The debate around the world continues as to who’s to blame…fundamentals or speculator while the price of oil continues to increase. The sooner the politicians work on solving the problem and yes it is a problem of fundamentals as described in detail in yesterday’s report the better the world will be. However, I do not expect the talking and finger pointing to stop anytime soon especially since this is an election year in the US.
Back to oil, the market is once again moving closer to all time highs as new production shut-ins have occurred in Nigeria with minimal high quality surplus capacity available to replace it. I do not think the speculators have orchestrated the problem in Nigeria nor do I think the speculators have orchestrated the problems in the Middle East around Iran’s nuclear program. The price of oil is not likely to decline substantially until the world is convinced there is enough spare capacity to solve the everyday problems that seem to be getting more frequent and larger in scale.
We get another snapshot of fundamentals tomorrow when the EIA releases it latest oil supply & demand report. We expect another decline in crude oil as refinery runs continue to ramp back up resulting in a build in gasoline and distillate. Demand is expected to continue to show a decline on a year on year basis. The report will be neutral at best especially if the demand figures come in as expected.
We do expect volatility to remain above normal and we do believe we may make another new historical high in WTI this week, especially if the dollar weakens and the oil inventory report turns out to be a bit more bullish than I expect it to be. The rest of the week will be driven by the unfolding events in Nigeria, the evolving situation in Iran, as new EU sanctions were placed on Iran yesterday and the public debate going on around the world as to the cause of high energy prices rather than a more detailed consensus on the solution.
Hedging with option type instruments remains the technique of choice as corrections can come at any time while the buy side of the ledger remains the trade of choice for the speculators & investors while employing tight stops.
Currently prices are firm for oil and bit weaker for the dollar.
| Current Expected Trading Range | | | ||
| | 6/24/08 | Change | Upper | Lower |
| | | From | Resistance | Support |
| | 6:37 AM | Yesterday | | |
| Aug WTI | $137.93 | $1.19 | $140.00 | $99.20 |
| July HO | $3.8363 | $0.0399 | $4.0000 | $2.7100 |
| July RBOB | $3.4815 | $0.0264 | $3.5000 | $2.5200 |
| July NG | $13.248 | $0.045 | $13.500 | $11.000 |
| | | | | |
| Euro/$ | 1.5496 | 0.0041 | 1.6000 | 1.5200 |
| Yen/$ | 0.9306 | (0.0015) | 1.0450 | 0.9000 |
Dominick A. Chirichella
Energy Management Institute
tel 646-202-1433
fax 801.383.7510
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