Latest As of Friday

As we have been indicating for the past several days the oil complex staged a short covering rally Thursday. Yesterday’s inventory reports for both the oils and NG was viewed as bearish with refinery runs continuing to decline due to poor economics. The oil complex continues to follow the equities markets which received a boost from Congress and the White House yesterday which confirmed $150 billion dollar stimulus package of tax rebates for families as well as incentives for business investment to help bolster the economy.

 

Yesterday’s oil inventory report showed crude stocks built 2.3 million barrels while distillate stocks declined 1.3 million barrels. Gasoline showed a massive build of 5 million barrels and refinery runs fell 0.6% to 86.5%. Also yesterday the EIA released NG inventories which showed 155 BCF withdrawal which was within expectations. As we mentioned yesterday when we view the 5 year average timeframe the deficit is narrowing and not so great with crude and refined products still well within the normal operating range.

 

We still believe from a traders perspective we are heading into a period of consolidation with the risk reward ratio moving more to risk/whipsaw side of the equation. From a hedgers perspective after analyzing yesterday’s inventory reports (which we viewed as bearish) we are going to remain on the sideline for the moment until we get a better signal of which direction the market is going to head in.

 

We expect the market to continue to trade in a wide trading range and remain susceptible to whipsawing on little or no news. Currently prices are firm across the board.

 

Current Expected Trading Range				Jan 25,2008
	Friday	Change	Upper	Lower
	as of	From Prev.	Res.	Support
	7:00 AM
Mar WTI	$88.02	$1.03	$92.50	$86.00
Mar Brent	$87.69	$1.07	$95.50	$86.50
Feb HO	$2.4565	$0.0334	$2.7500	$2.4400
Feb Gasoil	$777.25	$6.50	$840.00	$750.00
Feb RBOB	$2.2742	$0.0234	$2.6500	$2.1800
Feb NG	$7.705	$0.084	$8.000	$7.600

 

 

 

Salvatore Umek

Energy Management Institute

tel. 201.659.7410

cell. 201.697.5834

fax. 201.624.7164

Sal@energyinstitution.org

www.energyinstitution.org

 

 

_____________________________________________________________________________________________________

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Latest As Of Thursday

With equities now in a bit of a short term recovery the energy complex will focus mostly on today’s EIA release of both oil & NG inventories. The equities markets demonstrated on Wednesday that oil is not the only volatile instrument. The Dow had a trading range of over 600 points on Wednesday ending in positive territory. This was enough to keep the energy complex off of its lows of the day (although not enough to push oil into positive territory on Wed) with carry through short covering in early morning electronic trading. As of this writing oil is up over $1/bbl as the market awaits the 10:30 am EST snapshot of fundamentals.

 

The following table shows the latest projections for today’s reports. As shown below the report is expected to show across the board builds in oil and a modest, seasonal withdrawal for NG. When viewing the projected oil inventories versus last year and the same week for the 5 year average the only glaring problem that still exists is the year on year deficit of crude oil. However, when viewed in the 5 year average timeframe the deficit is not so great with crude and refined products still well within the normal operating range. If the actuals come in as expected we would interpret the oil report as neutral to slightly bearish.

 

NG is projected to show a modest withdrawal but still show a sizeable surplus versus the 5 year average. With another round of warmer than normal weather projected for most of the eastern half of the Us through Feb 6^th we would expect NG to likely move into a defensive trading pattern.

 

Projections		1/24/08
	Current	Change from	Change from
	Projections	Last Year	5 Year
mmbls		vs. Proj.	vs. Proj.
Crude Oil	1.5	(33.6)	(6.6)
Gasoline	1.6	(3.9)	1.7
Distillate	0.1	(12.7)	(3.2)
Ref. Runs%	-0.1%	-0.4%	-1.5%
Change Level	87.0%	87.4%	88.5%
	BCF	BCF	BCF
NG, BCF	(155)	(221)	224

 

As we have been indicating for the last several days the complex is susceptible to a round of short covering. It seems that the short covering has started during the overnight trading period after oils failed to solidly breach the long term support areas (see the last table below) along with a recovery rally in equities. We expect the price rally to extend a bit more unless the inventory reports are more bearish than the expectations are indicating. From a trading perspective we believe we are heading into a period of consolidation with the risk reward ratio moving more to the risk/whipsaw side of the equation. From a buy hedging perspective we may be getting closer to entry levels, however, we will comment more on the hedging side in tomorrow’s report after we have had an opportunity to analyze today’s inventory reports.

 

Currently prices are firm across the board as many of the world’s equities markets are also staging a bit of a recovery on the back of yesterday’s gains in NY.

 

Current Expected Trading Range
	1/24/08	Change	Upper	Lower
		From	Resistance	Support
	7:29 AM	Yesterday
Mar WTI	$88.53	$1.54	$92.50	$86.00
Feb HO	$2.4644	$0.0413	$2.7500	$2.4400
Feb RBOB	$2.2865	$0.0357	$2.6500	$2.1800
Feb NG	$7.693	$0.072	$8.000	$7.600

 

 

 

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

As we discussed in yesterday’s report the energy markets are being driven by the direction of the equities markets. We experienced another strong sell-off in equities and energies. Prices traded down to our predicated support level for everything other than gasoline which came close. However. Prices bounced off of the lows and settled above the lows on an intraday short covering rally initiated by the announcement of the Fed cutting the Fed Funds rate by an a unprecedented .75%. This help to stabilize equities a bit which reversed the selling in the oil complex.

 

In overnight trading the energy complex remains not the defensive with everything trading/hovering near the long term support levels shown in the table at the end of the report. We expect the market to continue to focus on the direction of the equities markets as all other energy drivers still remain quite for the moment. The next pure energy event will be the release of inventories on Thursday for both oil & NG.

 

The early projections are shown in the following table in comparison to last year and the same week 5 year average. The market is expecting an across the board build in the oil complex and a seasonal withdrawal for NG. Refinery runs are expected to show another small decline as refinery margins continue to weigh on that sector of the industry. In comparison to last year the most glaring difference is the year on year deficit for crude oil. However, when compared to the 5 year average the deficit is much more modest and well within the normal operating range for crude oil. If refinery margins remain weak refiners are going to keep runs at below normal rates thus forcing above normal builds in crude oil going forward. If this proves to be the case we would then expect to see above normal declines in refined products which could foster a reversal in the current direction of oil prices.

 

If the actuals come in as predicted we would expect the market to interpret the reports as neutral to biased to the bearish side.

 

Projections		1/23/08
	Current	Change from	Change from
	Projections	Last Year	5 Year
mmbls		vs. Proj.	vs. Proj.
Crude Oil	1.5	(33.6)	(6.6)
Gasoline	1.5	(4.0)	1.6
Distillate	0.1	(12.7)	(3.2)
Ref. Runs%	-0.1%	-0.4%	-1.5%
Change Level	87.0%	87.4%	88.5%
	BCF	BCF	BCF
NG, BCF	(155)	(221)	224

 

Although prices are still on the decline we continue to waive the caution flag as the market is becoming more susceptible to a strong short covering rally. Prices are hovering near key support levels and held after yesterday’s rout in the complex and the Fed actions are likely to ad a bit more stability to the world’s equities markets. A reversal in equities will also cause a reversal in oil prices in the short term. We will have to watch this relationship closely. If equities do not rebound in the short term we will definitely breach the key support levels for oil and could result in WTI trading in the low 80’s before stabilizing, an interesting change in direction over the last three weeks.

 

Currently prices are lower across the board.

 

Current Expected Trading Range
	1/23/08	Change	Upper	Lower
		From	Resistance	Support
	7:39 AM	Yesterday
Mar WTI	$88.12	($1.09)	$92.50	$86.00
Feb HO	$2.4508	($0.0218)	$2.7500	$2.4400
Feb RBOB	$2.2589	($0.0217)	$2.6500	$2.1800
Feb NG	$7.650	($0.020)	$8.000	$7.600

 

 

 

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.