The market remains in a bit of a trading range with a bias to the upside. Not much new to drive the market in either direction at the moment. All of the ongoing drivers that have been in the market for the last week or so continue to capture the attention of the participants. ABC news reported that an undisclosed source at the Pentagon indicated that Israel is likely to attack Iran’s nuclear facility before the year is out. Just a little more fuel to the already boiling atmosphere in the Geopolitical world of the Middle East.
With demand declining in most developed nations like the US and expected to continue to remain on the defensive the bulls will most likely minimize their focus on today’s EIA US oil report. As shown in the following table the market is expecting declines on both crude oil & gasoline and another above average build in distillate stocks. Refinery runs are expected to increase slightly on the week. The most concerning item on the board is the growing year on year deficit of crude oil stocks. In fact the last time crude oil inventories were this low was in 2003 (for the same week). Even the deficit versus the 5 year average (for the same week) is projected to exceed 20 million barrels. On the other hand both gasoline & distillate remain well supplied when compared to both the same time last year and the 5 year average. Declining demand for refined products across the board in the US is helping to keep product inventories well within normal ranges and indicative of a market that is not likely to experience any supply shortfalls anytime soon.
If the report comes in as expected along with negative demand figures we would view the report as neutral to bearish. With the market sentiment still decidedly bullish I would expect most market participants to focus on the bullish part of the report which is the big gap in US crude oil stocks and pretty much ignore the products inventories and what should be another week showing a declining demand picture.
| Projections | | 7/2/08 | |
| | | | |
| | Current | Change from | Change from |
| | Projections | Last Year | 5 Year |
| mmbls | | vs. Proj. | vs. Proj. |
| Crude Oil | (1.2) | (53.5) | (20.9) |
| Gasoline | (0.5) | 3.8 | (0.5) |
| Distillate | 2.4 | 0.2 | 1.6 |
| Ref. Runs% | 0.1% | -1.3% | -5.7% |
| Change Level | 88.7% | 90.0% | 94.4% |
We expect the market to trade in the same pattern it has been trading for the rest of the week as liquidity begins to dry up ahead of the long holiday weekend in the US. Aside from today’s inventory report the market will be focused on tomorrow’s decision by the EU as to the direction of interest rates. Many are expecting an increase in rates which would be bearish for the dollar and bullish for oil. If they do in fact raise rates and the dollar gets hit with a strong round of selling it is likely to result in a very strong move in oil prices especially since many participants will already be on the sidelines and liquidity should be below normal.
Volatility will remain above normal and prices are likely to show both large gains and losses within the same trading session as it has been doing most of this week. Currently prices are mixed for the energy complex and the dollar.
| Current Expected Trading Range | | | ||
| | 7/2/08 | Change | Upper | Lower |
| | | From | Resistance | Support |
| | 7:26 AM | Yesterday | | |
| Aug WTI | $141.20 | $0.23 | $150.00 | $130.00 |
| Aug HO | $3.9428 | ($0.0007) | $4.0000 | $2.7100 |
| Aug RBOB | $3.5110 | ($0.0024) | $3.7500 | $3.0000 |
| Aug NG | $13.664 | $0.159 | $13.500 | $11.000 |
| | | | | |
| Euro/$ | 1.5742 | 0.0012 | 1.6000 | 1.5200 |
| Yen/$ | 0.9407 | (0.0065) | 1.0450 | 0.9000 |
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