Last week saw the single biggest weekly move in the history of oil. A move that saw crude oil fall by over $16/bbl or 11.1%, HO declined by almost $0.39/gal while RBOB gasoline fell by almost $0.40/gal. Over the next few week if prices do not surge higher the consumer will begin to see some retracement of gasoline prices at the pump. Hopefully the consumer will not begin to increase their consumption of oil.
So far this morning prices are firm on concern that the weekend meetings with the Iranians over their nuclear enrichment program failed to reach any major conclusions other than the West imposing a 2 week deadline or else new sanctions will be put in place. The Iranian President said in the Iranian media that progress was made at the session. The next two weeks will tell or not tell if we are any closer to an end of this problem. This situation has been in the Geopolitical forefront for several years and all signs indicate that it will continue for many months into the future. At best the Iranian debacle will contribute to keeping a floor on the market and possibly re-energize the bulls if the war of words begins again.
The market is closely watching Tropical Strom Dolly which is expected to strengthen into a hurricane by mid-week and likely make land around the northeastern border of Mexico sometime on Thursday. Based on the projected path shown below it is unlikely to cause major problems with oil flow, nat gas production or refinery production. It could possibly impact crude oil offloading from the LOOP for a few days as the storm passes by as well as production from Mexico. In either case it does not look like a sustained problem nor one that will cause any major supply disruptions for an extended period of time.
![[Image of 5-day forecast of predicted track, and coastal areas under a warning or a watch]](cid:image001.gif@01C8EAFE.31E345B0)
The latest CFTC Commitment of Traders report, released on Friday afternoon showed no major change in the the non-commercials or speculative sector net long position this week but as discussed above the price of oil declined strongly on the week. Since the CFTC COT report is based on futures positions as of Tuesday morning this report is a bit of a lagging indicator in that the decline in prices really began to accelerate after the EIA oil inventories were released on Wednesday morning and as such next week’s report should be more reflective of another reduction in the overall net long position for the spec community. In any event the net long position of the spec community is hovering near its smallest net long position since last August of 2007.
I believe the market is going to struggle a bit this week to make any major move to the upside (barring anything unusual, Geopolitics, a change in the path of Tropical Storm Dolly, the direction of the dollar, etc.). The move this morning is pretty much a mild round of short covering after last week’s rout by the weak shorts in the market who are concerned with the tropical storm, Iran and a bit of dollar weakness so far today. The market is hovering near its next key support levels and if breached we can see oil moving into a new trading range this week….WTI range - $122 to $127/bbl, HO - $3.50 to $3.70/gal and RBOB - $3 to $3.15/gal. Again barring anything to the contrary we believe the market now has a decent probability of moving into the aforementioned trading ranges and consolidating & remaining in these price areas for a few weeks.
The market sentiment has clearly changed and is significantly less bullish that it was just a few weeks ago. I would rate the overall market sentiment as neutral at best with a slight cautious bias to the downside.
Currently prices are firm for energy and weaker for the dollar versus most major currencies.
| Current Expected Trading Range | | | ||
| | 7/21/08 | Change | Upper | Lower |
| | | From | Resistance | Support |
| | 6:51 AM | Yesterday | | |
| Aug WTI | $130.70 | $1.82 | $150.00 | $130.00 |
| Aug HO | $3.7349 | $0.0434 | $4.0000 | $2.7100 |
| Aug RBOB | $3.2110 | $0.0401 | $3.7500 | $3.0000 |
| Aug NG | $10.700 | $0.130 | $12.000 | $10.000 |
| | | | | |
| Euro/$ | 1.5839 | 0.0043 | 1.6000 | 1.5200 |
| Yen/$ | 0.9403 | 0.0019 | 1.0450 | 0.9000 |
Dominick A. Chirichella
Energy Management Institute
tel 646-202-1433
fax 801.383.7510
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