So far this week the energy market has been all about Tropical Storm Dolly and the lack of any major progress with Iran. As we said yesterday neither is going to result in a major supply disruption anytime soon. As shown in the latest NWS forecast chart (at the end of the email) Dolly is on a track that should make landfall sometime tomorrow near the Mexico/Texas border. The projected path is unlikely to cause any problems to oil or NG production or refining capacity.
On the Iranian front little progress was made over the weekend with a new two week deadline for Iran to act or have new sanctions imposed. As we keep saying this situation will continue in the media for months into the future with a low probability of it leading to an event that will disrupt supply.
With those two events becoming less important on the price of oil in the short term the market is back to focusing on the direction of the dollar which is slightly weaker this morning and the short term fundamentals of the market. Demand for refined products is a mixed bag in the world. OECD countries are continuing to reduce their consumption pattern led by the US while the developing world is still projected to show strong demand growth on the year even as some countries reduce their price subsidies. Viet Nam is the latest Asian country to reduce its oil price subsidies. China after lowering its subsidies is still showing an increase in crude imports in June as well as a record amounts of diesel purchases as it readies for the upcoming Olympics.
On the supply side the market is beginning to see oil stocks moving into the very comfortable range, especially for gasoline in the US (the largest consumer of gasoline in the world). Tomorrow the EIA report is expected to show a mixed result with crude oil and gasoline showing small declines ( crude decline – 500,000 bbls, gasoline decline – 150,000 bbls) while distillate is expected to show a strong build of over 2 million barrels. We do not expect to see any major changes in refinery runs as refinery margins continue to underperform.
We do expect demand to continue to weaken as US consumers slowly change their buying and utilization habits. Overall we expect tomorrow’s report to be biased to the bearish side.
We do not see any reason why oil would begin to surge higher from current levels (barring a very bullish inventory report or unexpected Geopolitical event) this week. In fact we’re still of the mindset that the complex will continue to be on the defensive this week (especially if the inventories are bearish and as TS Dolly fades away). We expect prices will breach the levels discussed in yesterday’s report and enter a new, lower trading range for the next few weeks.
Currently oil is trading either side of unchanged with the dollar slightly lower.
| Current Expected Trading Range | | | ||
| | 7/22/08 | Change | Upper | Lower |
| | | From | Resistance | Support |
| | 7:19 AM | Yesterday | | |
| Aug WTI | $131.31 | $0.27 | $150.00 | $130.00 |
| Aug HO | $3.7643 | $0.0164 | $4.0000 | $2.7100 |
| Aug RBOB | $3.2231 | $0.0060 | $3.7500 | $3.0000 |
| Aug NG | $10.367 | ($0.143) | $12.000 | $10.000 |
| | | | | |
| Euro/$ | 1.5895 | 0.0048 | 1.6000 | 1.5200 |
| Yen/$ | 0.9456 | 0.0058 | 1.0450 | 0.9000 |
![[Image of 5-day forecast of predicted track, and coastal areas under a warning or a watch]](cid:image001.gif@01C8EBCB.D81F2F70)
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