Not much new to support yesterday’s recovery just more of the same. As we have been indicating it may be a bit too early to declare that the energy complex is in a significant downside correction and not just another shallow and short move to the downside. Yesterday’s trading activity supported that view. The media was looking for reasons to justify the sudden change of sentiment by writing off as related to the strong NG market, or the storm over the weekend or OPEC saying it saw no need for a special meeting. These reasons had basically noting to do with the move to the upside in prices. Prices moved lower last week and what we saw a typical short covering rally as many of the shorts in the market remain very cautious shorts with little tolerance as they have been burnt time and time again in the ongoing oil rally to the upside. The short covering rally was more product led and mostly in response to a refinery in the Gulf suddenly shutting down due to a power surge. In fact as of this writing crude oil has already given back more than it gained yesterday.
That said the market is still looking and searching for reasons to support both the bulls and the bears. Kind of a description of a market that may be entering a consolidation phase prior to making its next move. We still believe the next big move will be to the downside. However, we still may see some attempts to move a bit higher. The next event that will likely play a large role in the short term will be the release of EIA inventories tomorrow morning at 10:35 AM (the report is being delayed 5 minutes due to technical difficulties that the EIA is working to rectify). We should see a recovery in crude oil inventories after last week’s decline to weather related closure of the Houston Ship Channel, a build in distillate and possibly a build in gasoline if most of the forecasters were right that driving/demand for gasoline was lower over the holiday weekend. The market will be looking at the demand figures very closely and any deviations from the demand declining school of thought is likely to move prices strongly one way or the other.
We continue to expect volatility to remain high and prices to struggle in either direction for the moment. However, we still view this market as more susceptible to further downside movement rather than another sustainable surge in prices in the short to medium term. Currently prices are mixed.
| Current Expected Trading Range | | | ||
| | 6/3/08 | Change | Upper | Lower |
| | | From | Resistance | Support |
| | 7:38 AM | Yesterday | | |
| Jul WTI | $127.24 | ($0.52) | $135.00 | $99.20 |
| July HO | $3.7251 | $0.0031 | $4.0000 | $2.7100 |
| July RBOB | $3.3865 | ($0.0042) | $3.5000 | $2.5200 |
| July NG | $12.250 | $0.281 | $12.000 | $8.700 |
| | | | | |
| Euro/$ | 1.5576 | 0.0044 | 1.6000 | 1.5200 |
| Yen/$ | 0.9582 | (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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