Not much new overnight and as such the market is awaiting this morning’s EIA oil fundamental snapshot to be released at 10:30 am EST along with the outcome of the Federal Reserve FOMC meeting at 2:15 pm EST. The action or non-action by the Fed on interest rates could possibly impact the dollar and ultimately the direction of oil prices.
The market is expecting another mixed report with normal seasonal declines in crude oil & gasoline and a modest build in distillate. Refinery runs are expected to increase slightly as a result of improved refinery margins. The most glaring inventory item is the growing year on year deficit of crude oil which is projected to exceed 51 million barrels and over 23 million barrels basis the 5 year average for the same week. On the other hand gasoline remains plentiful as compared to last year as does distillate compared to last year and the 5 year average.
Most market participants will mostly focus on the demand figures. Demand has been on the defensive with total US demand already below last year and the 5 year average for the same week. We expect this pattern to continue this week. In fact in its weekly report, MasterCard's SpendingPulse survey found that demand
for gasoline in the U.S. fell 2.7 percent last week compared with the same week last year, and is off by an average of 3.6 percent over the last four weeks compared with the same period in 2007. The MasterCard report is reflective of actual consumption at the retail level while the IEA report is reflective of the wholesale consumption level. In both cases the reports are showing real demand destruction due to the high price environment. The free market is working well as US consumers adjust their lifestyles in a post $4/gal gasoline market.
| Projections | | 6/25/08 | |
| | | | |
| | Current | Change from | Change from |
| | Projections | Last Year | 5 Year |
| mmbls | | vs. Proj. | vs. Proj. |
| Crude Oil | (1.7) | (51.6) | (23.2) |
| Gasoline | (0.8) | 5.6 | (0.7) |
| Distillate | 1.7 | (2.1) | 0.5 |
| Ref. Runs% | 0.1% | 0.0% | -4.5% |
| Change Level | 89.4% | 89.4% | 93.9% |
The combination of today’s inventory report and the outcome of the Fed FOMC meeting will likely set the stage for the rest of this week’s trading. We believe the EIA report will be viewed as neutral to bullish due to the growing year on year deficit of crude oil and very bullish if demand data does not confirm the expectations that demand is continuing to decline. On the Fed watch most of the market expects the Fed to be focused on fighting inflation risk and as such the next move they make will likely be to raise interest rates. Most in the market do not expect the Fed to move on interest rates until later in the year. Any move by the Fed to raise interest rates will firm the dollar and thus serve as a bearish catalyst for oil prices. Even a very strong statement by the Fed today about their current concern/bias and possible action may be enough to firm up the dollar and give it the boost it needs to breach and trade above the long term resistance level. Both of today’s events will be market movers.
Currently prices are mixed across the board.
| Current Expected Trading Range | | | ||
| | 6/25/08 | Change | Upper | Lower |
| | | From | Resistance | Support |
| | 6:47 AM | Yesterday | | |
| Aug WTI | $136.90 | ($0.10) | $140.00 | $99.20 |
| July HO | $3.8163 | $0.0027 | $4.0000 | $2.7100 |
| July RBOB | $3.4485 | ($0.0150) | $3.5000 | $2.5200 |
| July NG | $12.932 | ($0.079) | $13.500 | $11.000 |
| | | | | |
| Euro/$ | 1.552 | 0.0009 | 1.6000 | 1.5200 |
| Yen/$ | 0.9305 | (0.0006) | 1.0450 | 0.9000 |
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