The energy complex remains jittery as the market gets another snapshot of the fundamentals today while waiting for the upcoming Saudi producer/consumer meeting on Sunday. Meantime the US dollar is stuck in a tight trading range near the upside breakout level. Little guidance for a market hungry for the next emerging driving to help move prices strongly in either direction. Neither the upcoming Saudi meeting or news that the CFTC will begin to impose position limits on ICE Europe for US contract (WTI) have not moved the market much in either direction. The market is lower so far on the week but has already made a new all time historical high early in the week.
On the inventory front (see following table) the market is expecting a decline in crude oil stocks as a result of another increase in refinery runs. On the other hand the expectations are calling for a modest increase in refined products as runs increase and demand is likely to remain on the weak side. Most noteworthy in the report is the large year on year deficit of crude oil stocks versus the same time last year. This is a bit surprising since the crude oil forward curve is in a modest contango through most of 2008. However, the cost of holding inventory has risen strongly as a result of the current high price of oil. On the other hand the primary product of the season…gasoline remains well supplied with eh year on year surplus still well over 7 million barrels above last year at this time. The reason is a combination of demand reduction due to high prices and higher than normal inventories to start the gasoline season. Distillate stocks are expected to continue their normal seasonal building between now and about early December. With the distillate forward curve solidly in a contango through January, 2009 aggressive inventory building should continue especially with demand on the downside.
Overall we view this week’s report as neutral but with the market sentiment still very bullish we would expect the market to focus more on the crude decline rather than the product situation. Also if the demand numbers do not continue to confirm (we believe they will) that demand is eroding the market will view the report as bullish.
| Projections | | 6/18/08 | |
| | | | |
| | Current | Change from | Change from |
| | Projections | Last Year | 5 Year |
| mmbls | | vs. Proj. | vs Proj. |
| Crude Oil | (1.5) | (48.6) | (22.8) |
| Gasoline | 0.9 | 7.7 | 1.6 |
| Distillate | 1.5 | (7.2) | (1.7) |
| Ref. Runs% | 0.5% | -0.5% | -6.3% |
| Change Level | 87.1% | 87.6% | 93.4% |
With little else to go on and with the dollar treading water today we expect the market to likely focus on the inventory report with a bit more conviction and possibly even overreact to any deviations from the expectations shown above. Volatility will remain high.
Currently prices are mixed for energy with the dollar trading a bit firmer at the moment.
| Current Expected Trading Range | | | ||
| | 6/18/08 | Change | Upper | Lower |
| | | From | Resistance | Support |
| | 7:19 AM | Yesterday | | |
| Jul WTI | $134.34 | $0.33 | $140.00 | $99.20 |
| July HO | $3.8101 | ($0.0121) | $4.0000 | $2.7100 |
| July RBOB | $3.4178 | ($0.0001) | $3.5000 | $2.5200 |
| July NG | $13.118 | $0.166 | $13.000 | $11.000 |
| | | | | |
| Euro/$ | 1.5409 | (0.0036) | 1.6000 | 1.5200 |
| Yen/$ | 0.9283 | (0.0024) | 1.0450 | 0.9000 |
Dominick A. Chirichella
Energy Management Institute
tel 646-202-1433
fax 801.383.7510
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