Latest as Of Thursday Morning

The oil surge is alive and well. An emotionally charged market sentiment once again discounted all of the bearish aspects of the oil inventory report as well as the fact that OPEC did not cut production. Up until yesterday the only market discussion was whether or not OPEC would cut production or agree to a rollover agreement.  The consensus opinion was they would rollover their existing agreement. They did but the market quickly turned very bullish on the news based on the fact that they did not increase production (not even a discussion item leading up to the meeting?).

 

Then the inventories came out and showed a surprise decline in crude oil stocks but a larger than expected build in gasoline. Crude oil stocks remain below last year but still above the normal, 5 year average. On the other hand gasoline stocks are now about 18 million barrels above last year’s record high level and almost 20 million barrels above the normal 5 year average. The market only focused on the crude draw.

 

As we discussed in yesterday’s report if the market ignored all of the bearish news it would be off to the races again. That is exactly what happened as we hit record highs across the board in the complex. The fact that the US dollar continues to trade near record lows versus many currencies is also fueling the surge in oil (and most other commodity) prices. So for now we see the current trading pattern continuing with the potential for a significant downside correction at any time.

 

As we have been recommending from the speculative side one can only trade this market from the long side with tight trailing stops so as to not get caught in the downdraft when the correct really occurs. From a purchasing side hedging perspective we continue to recommend using only option strategies, either buying outright calls or entering in debit call spreads so as to be in a position to participate in lower prices during a correction.

 

It is hard to say what is going to be the primary catalyst that will finally cap the current price move. However, with the US economy still projected to remain weak (Fed remarks just yesterday) a high oil & commodity price environment is going to impact the economy negatively adding further downside pressure on economic growth and thus oil demand growth. The complex remains in a bubble atmosphere with seemingly no end in sight at the moment. Caution remains the keyword.

 

Currently crude oil is making new all time highs in early trading.

 

Current Expected Trading Range
	3/6/08	Change	Upper	Lower
		From	Resistance	Support
	6:03 AM	Yesterday
Apr WTI	$105.32	$0.80	$110.00	$99.20
Apr HO	$2.9412	($0.0019)	$3.0000	$2.7100
Apr RBOB	$2.6476	$0.0055	$2.7000	$2.5200
Apr NG	$9.740	($0.001)	$9.800	$8.700

 

 

Dominick A. Chirichella

Energy Management Institute

tel 646.202.1433

fax 801.383.7510

dchirichella@emimail.org

www.energyinstitution.org

www.advancedenergycommerce.com

 

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.

 

 

Latest As Of Wednesday Morning

Yesterday showed the early signs of the surge possibly starting to break. After hitting new highs in early morning trading the market began to lose steam as the overhang in the fundamentals started to override the financial drivers that the market has been following of late. In addition the US dollar bounced slightly off of its all time lows. The net result is the market moved strongly lower on the day with a very oversupplied gasoline market leading the way down.

 

Today to get another snapshot of oil inventories with another bearish report expected. As shown in the following table crude oil and gasoline are expected to continue their pattern of building (crude oil build 8^th week in a row, gasoline build 11^th week in a row – highest level since 1993) while distillate and NG are expected to show normal seasonal declines. With this week’s expected builds the year on year deficit of crude oil is projected to narrow once again while the year on year surplus of gasoline is now expected to be over 16 million barrels. When comparing the projected current levels to the 5 year average for the same week the surplus, or above normal inventory level is widening across the board with gasoline showing a significant surplus of over 18 million barrels. If the actuals come in as expected we would view the report as bearish. The market will view the report s bearish but it is uncertain if the market will focus on the report or once again discount it as it has been doing for the last month or so.

 

Projections		3/5/08
	Current	Change from	Change from
	Projections	Last Year	5 Year
mmbls		vs. Proj.	vs. Proj.
Crude Oil	2.5	(13.2)	8.8
Gasoline	0.3	16.5	18.2
Distillate	(1.8)	(6.4)	4.4
Ref. Runs%	0.0%	-1.3%	-2.3%
Change Level	84.7%	86.0%	87.0%
	BCF	BCF	BCF
NG, BCF	(125)	(137)	94

 

 

OPEC is also meeting today with the hawks within OPEC still indicating they are uncomfortable with not cutting production at this time as they become more concerned over demand growth weakening during the 2^nd quarter and subsequent inventory building. On the other hand Saudi Arabia, the leading dove within OPEC is quoted over the news wires that the oil complex is comfortable and there is no need to cut nor increase production. Normally what Saudi Arabia says is what usually occurs within OPEC. So we do not expect anything other than an rollover agreement.

 

With little else going on we would normally expect the market to continue its downside correction that was started yesterday. This is not a given as the market has not been trading in any kind of normal pattern rather a very emotional bullish market sentiment has been the main driver. It will be important to see how the market trades on Wednesday after all of the potential bearish news (inventories and rollover OEPC agreement) is reported and digested by the market. If the market continues to discount this bearish news it will be off to the races once again as the market will surge higher putting the long awaited correction on the back-burner for now. If now we could see a substantial decline as the market remains overvalued at every level of the infrastructure.

 

Currently prices are firm.

 

Current Expected Trading Range
	3/5/08	Change	Upper	Lower
		From	Resistance	Support
	6:00 AM	Yesterday
Apr WTI	$100.50	$0.98	$103.25	$99.20
Apr HO	$2.8253	$0.0335	$2.9200	$2.7100
Apr RBOB	$2.5687	$0.0396	$2.7000	$2.5200
Apr NG	$9.407	$0.054	$9.800	$8.700

 

 

 

Dominick A. Chirichella

Energy Management Institute

tel 646.202.1433

fax 801.383.7510

dchirichella@emimail.org

www.energyinstitution.org

www.advancedenergycommerce.com

 

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.

 

 

Latest As Of Tuesday Morning

With investment capital continuing to flow into commodities and in particular into oil the energy complex remains firm and primarily focused on the  weakening US dollar. Fundamentals and all of the other normal market drivers remain in the background.

 

Although the market is expecting another build in crude oil (8^th week in a row) and the 11^th week of builds for gasoline the market is not likely to overreact to this bearish news when the EIA releases its next oil inventory report tomorrow morning. In fact gasoline is significantly over supplied with inventories through last week at the highest level since 1993. With the majority of the heating season behind us all eyes will quickly be looking toward the upcoming gasoline driving season. With the amount of gasoline still in inventory (and growing) it shows how over-valued gasoline prices are as well as the rest of the complex.

 

As we have been indicating the market remains very susceptible to a downside correction. With OPEC likely to roll over their existing agreement at the meeting tomorrow and with the EIA expected to release another bearish inventory report one would think tomorrow could be the beginning of the correction. However, with market participants focus on the financials and currencies the likelihood of the correction beginning anytime soon is still relatively remote.

Currently prices are firm even as the dollar has bounced off of its overnight lows.

 

Current Expected Trading Range
	3/4/08	Change	Upper	Lower
		From	Resistance	Support
	7:53 AM	Yesterday
Apr WTI	$103.09	$0.64	$103.25	$99.20
Apr HO	$2.8481	$0.0073	$2.9200	$2.7100
Apr RBOB	$2.6836	$0.0116	$2.7000	$2.5200
Apr NG	$9.405	$0.059	$9.800	$8.700

 

 

 

 

 

Dominick A. Chirichella

Energy Management Institute

tel 646.202.1433

fax 801.383.7510

dchirichella@emimail.org

www.energyinstitution.org

www.advancedenergycommerce.com

 

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.

 

 

Latest As Of Monday Morning

Prices are hovering near least week’s closing levels as we enter what will likely be another volatile and interesting week. This Wednesday will be a kind of double witching day as the EIA releases its normal weekly oil inventory report and OPEC holds a monthly meeting.  We do not think the OPEC meeting will be very eventful as the odds are on OPEC just approving a roll-over of the current agreement. Prices are too high and inventories (although building) are still below the level that existed when OPEC last intervened in the market and cut production (Oct, 2006).

 

So that leaves oil inventories as the most likely driver of the week (barring any unforeseen Geopolitical events). Inventories have been bearish for the last several weeks. However, the market has pretty much discounted the fundamentals and has focused mostly on the weakening US dollar as the principal mover of oil prices. Most of the usual Geopolitical hotspots were quiet over the weekend so for the moment we do not see that as impacting prices (right now).

 

The oil complex (as well as many other commodities) remains over-valued and extremely susceptible to a significant correction to the downside. In fact, I would actually call the current price activity , especially in the crude oil market, as a bubble. The last $10 to $15/bbl has been driven by an emotionally charged market sentiment and more as a hedge against inflation (due to the falling dollar) rather than anything remotely fundamental. Bubbles eventually burst and oil will not be an exception. The only issue is when will it happen?

 

Until we see some stability in the US economy (as measured by the equities markets) the majority thinking is looking for strong intervention by the US Central Bank (cutting interest rates) thus putting additional pressure on an already weak dollar keeping the oil complex as well as the commodity complex as a grouping firm.

 

From a speculative perspective it is way too dangerous to play this market from the short side. In fact the specs should remain long with very tight trailing stops so as not to get caught in any major correction to the downside. From a buy side hedging perspective the only strategies worth employing is an options spreading strategy (debit call spread preferable at this stage of the move) to allow market participation when the correction comes. All new hedge strategies that are employed should be very short- term in duration (the next week at best) as the market can change direction on a moment’s notice and with little warning.

 

Currently prices are drifting lower as the US Dollars is marginally firmer in overnight trading.

 

Current Expected Trading Range
	3/3/08	Change	Upper	Lower
		From	Resistance	Support
	7:46 AM	Yesterday
Apr WTI	$101.31	($0.53)	$103.25	$99.20
Apr HO	$2.8109	$0.0040	$2.9200	$2.7100
Apr RBOB	$2.6638	($0.0061)	$2.7000	$2.5200
Apr NG	$9.340	($0.026)	$9.800	$8.700

 

Dominick A. Chirichella

Energy Management Institute

tel 646.202.1433

fax 801.383.7510

dchirichella@emimail.org

www.energyinstitution.org

www.advancedenergycommerce.com

 

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.