Monday, August 18, 2008
The market is starting the week on a relatively quiet note considering the situation between Russian and Georgia is still evolving and one of the storms we discussed last week has now turned into a Tropical Storm and likely to strengthen to a Hurricane. However, it does not appear likely to impact oil & NG operations in the Gulf Of Mexico. As shown in the following chart TS Fay is heading straight for Florida and away from the energy infrastructure in the Central Gulf.
The CFTC released their latest Commitment of Traders Report on Friday. As shown in the following chart of the Net Non-Commercial (or Speculative) positions versus the EMI Weekly Composite Price Index the spec net long position declined very slightly as the EMI Price index also declined on the week. The spec net long position remains at levels not seen since early 2007 when the price of the EMI Index was around $65/bbl or about $50/bbl lower than where it is today. This indicates that there is still room to the downside and with the specs still showing a net long position overall (albeit a small one) the likelihood of a very strong short covering rally may be limited at this point in time. Rather we can expect to see short bouts of short covering that have difficulty evolving into a full blown upside rally. We also expect more of the buy only investors to head to the sidelines which should put further pressure on energy prices.
The energy complex remains near the lower end of our predicted trading ranges and likely to test the lower support levels shown in the table a the bottom of the report. The market clearly remains in the downside correction pattern with WTI down over 21% since peaking on July 11th while HO/Diesel is now down over 25%. Needless to say the market is oversold and susceptible to minimal short covering rallies at any time. However, the market sentiment is still very bearish and markets can remain in an oversold state for an extended period of time. As we said last week we believe the market will probe below support over the next few trading session barring any unforeseen events that are bullish. The main events the market will be watching over the next few days are:
· The ongoing conflict between Russia & Georgia and how it plays out with the US & EU supporting Georgia. The issue and angle to pay most attention to is how this all plays out between the US & Russia. For many reasons I will elaborate on in a later report I truly believe we are in the early stages of Cold War, Part II.
· The evolving tropical weather patterns in the eastern Atlantic. One of the patterns we discussed last week turned out to be TS Fay the other has dissipated. As discussed above Fay will not impact oil & NG assets in the Gulf and as such any buying associated with Fay will dry up very quickly this morning and become a non-factor.
· The Iran/West nuclear standoff has been absent from the airwaves. We expect the war of words to emerge once again as the UN gets closer to another round of sanctions.
· This week's EIA report could be a market mover especially if refinery runs continue to decline pushing refined product inventories lower again. As always the inventory report generally impacts the market three times during the course of the week. First when all of the report expectations hit the market between Monday afternoon and Tuesday, second when the report is released and finally after the market has had a chance to delve into the numbers and adjust their positions accordingly. On a very preliminary note we expect this week's report to show another decline in refined products inventories (gasoline & distillate) as a result of lower than normal refinery utilization rates. We expect crude oil stocks to show either a small decline or a small build (nothing significant). We expect demand figures to track slightly lower.
· The surging dollar has been a major reason for the decline in oil and all other major commodity prices. The dollar fundamentals have changed as the world outside of the US starts feeling the impact of the economic slowdown thus most likely moving their Central bankers to a position of lowering rates while the US Fed is looking at inflation as the biggest threat to the US economy (inflation is fought with a strategy of raising interest rates). This bodes well for the dollar bulls. Furthermore the conflict evolving in Europe's backyard brings out the safe haven traders/investors into the US dollar. I believe we are in the very early stages of a major reversal in the US dollar, a reversal that should bring the dollar to much higher levels over the next 6 to 12 months. All of this should be bearish for oil.
· We must begin to pay attention to OPEC. There is an OPEC meeting on Sep 9th in Vienna. With prices falling strongly over the last month the more aggressive members of OPEC (Venezuela, Iran, Nigeria, Libya) will be pushing hard to cut production. I believe OPEC will likely begin to support the price of oil basis a WTI price of between $90 to $100/bbl. We should begin to see OPEC testing the waters over eh next several weeks with snippets hitting the airwaves. l depending on who makes the comments they could impact price direction in the short term.
As we have been recommending the specs should continue to trade cautiously from the short side employing tight, trailing stops while the buy side hedgers should remain in the ready position until we see some clearer signs that the market is actually in a bottoming pattern.
Current Expected Trading Range Expected Trading Range 8/18/08 Change Low High End From End Support Resistance 7:53 AM Yesterday Sep WTI $113.47 ($0.30) $110.00 $120.00 Sep HO $3.0906 ($0.0285) $3.0700 $3.3500 Sep RBOB $2.8445 ($0.0157) $2.8100 $3.0000 Sep NG $7.900 ($0.192) $7.530 $8.100 Euro/$ 1.4691 0.0036 1.5290 1.5550 Yen/$ 0.9082 0.0020 0.9200 0.9470
Best regards,
Dominick A. Chirichella
Energy Management Institute
The Energy Management Institute operates a fleet of daily, weekly and biweekly energy publications covering various angles of the energy market, including over a decade of natural gas and power price indexing. In addition, EMI provides higher learning for energy professionals with comprehensive, fully accredited, energy education programs from basic to advanced level. It also provides critical business information services and thought leadership in the energy segments of Oil, Gas, Power, Alternative Fuels, soft commodities and metals.
For more info visit our website (www.energyinstitution.org), email EMI at info@energyinstituion.org or call 888-871-1207
To unsubscribe to this report please respond to this email with the word remove in the subject line.
Dominick A. Chirichella
Energy Management Institute
1324 Lexington Ave #322
New York, NY 10128
tel 646-202-1433
fax 801.383.7510
This message and any attachments relate to the official business of the Energy Management Institute ("EMI") and are proprietary to EMI. This e-mail transmission may contain information that is proprietary, privileged and/or confidential and is intended exclusively for the person(s) to whom it is addressed. Any use, copying, retention or disclosure by any person other than the intended recipient or the intended recipient's designees is strictly prohibited. If you are not the intended recipient, you are hereby notified that any disclosure, copying, distribution or the taking of any action in reliance on this information is strictly prohibited. If this message has come to you in error, please immediately notify the sender by telephone or return e-mail and delete the original transmission and its attachments without reading or saving in any manner. Thank you.
1324 Lexington Ave #322, , New York, New York, 10128, USA
t: 646-202-1433 | f: 801-383-7510 e: dchirichella@emimail.org
http://www.energyinstitution.org/
No comments:
Post a Comment