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Tuesday, July 29, 2008
Dominick A. Chirichella's Energy Market Comments
Monday, July 28, 2008
Dominick A. Chirichella's Monday Morning Market Overview
The market is starting off the week with a bit of short covering on news of the Nigerian militant group claiming responsibility for two pipeline attacks belonging to Shell. In addition there were kidnappings of oil workers in Nigeria last week and later released. The Nigerian situation is once again a reminder of the Geopolitical risk that remains in the market place. On the other hand the market remains focused on the decline in demand and how that will play out over the next few months now that prices have receded off of the historical highs made in early July. Even with today’s short covering gains WTI on the Nymex is down a little over $20/bbl from two weeks ago.
The non-commercial or speculative community continues to reduce their net long exposure as the total net long position shown in the chart of the latest CFTC weekly Commitment of Traders Report is now at the lowest level since early Feb, 2007. In fact the Nymex WTI contract is now showing the spec community has now switched to a modest net short position. HO & RBOB are still showing the spec community to be net long. RBOB has the largest spec net long position in the energy group. This is very interesting since RBOB gasoline is showing the largest year on year inventory surplus (almost 13 million barrels) and we are more than half way through the US gasoline driving season. We would expect to see more shedding of net spec longs in gasoline over the next week or so especially if prices continue to fall further (which they should).The market sentiment is changing and is now solidly biased to the downside.
Further supporting prices so far today is renewed weakening of the US dollar. The dollar has made decent gains over the last two week and as we have experienced short covering in the energy complex this morning we are seeing a bit of profit taking selling in the US dollar to start the week. There will be several market moving economic data released this week (GDP, employment numbers) that are sure to impact the direction of the dollar and ultimately oil.
Overall we still believe the market has further downside as the correction is not over. However we do expect this to be a very volatile week with both gains & declines possibly from day to day and maybe even within the same trading session. Trading will be impacted by several items this week many of which may conflict with each other. This is what we will be watching on the week:
· The front end of the week will likely be driven by the ongoing problems in Nigeria and the direction of the dollar coupled by the expectations for this week’s inventories.
· The dollar will be impacted by GDP numbers on Thursday and employment data on Friday.
· We are not sure where the market consensus is going to come in on inventory projections but we think this week’s report could hold some surprises. Hurricane Dolly did not make landfall anywhere near the heart of the oil & NG industry in the Gulf but it did have an impact. A modest percentage of oil and NG was lost in the US Gulf as a result of safety evacuations. Some refinery capacity was throttled back as some refiners had delays in crude oil shipments. There were also weather problems in the Houston Ship channel and a closure of about 100 miles of the Mississippi River. None of the above were major events unto themselves but all put together we may see another large decline in crude oil inventories as well as distillate and gasoline declines due to refinery cutbacks. The report could prove to be a short term floor on prices for the week.
· Will the EIA report show another decline in demand? The market will be watching the demand figures released by the EIA and other reports now that the retail price of gasoline has dropped a bit below the $4/gallon mark. Gasoline prices on Nymex (wholesale price) are down about $0.55/gallon since hitting a high on July 11th. As lower prices slowly work their way into the retail sector it will be very interesting to observe the buying habits of the US consumer.
· Finally Iran is likely to have an impact later in the week as the two week ultimatum given to Iran at the last meeting expires on Saturday. Based on comments coming from the Iranian President it does not seem likely that anything is going to change from Iran’s part. At a minimum it is likely to result in a renewed war of words during the second half of the week.
Overall we view the market sentiment as still biased to the downside. Prices are solidly in our predicted trading ranges and we expect them to trade within the ranges shown in the table at the end of the report at least for the first half of the week and possibly beyond. We will be watching the $120/bbl level for WTI.
Currently prices are firm for the energies and weaker for the dollar.
| Current Expected Trading Range | Expected Trading Range | |||
| | 7/28/08 | Change | Low | High End |
| | | From | End Support | Resistance |
| | 7:20 AM | Yesterday | | |
| Sep WTI | $124.96 | $1.70 | $121.00 | $128.00 |
| Aug HO | $3.5803 | $0.0574 | $3.5200 | $3.7000 |
| Aug RBOB | $3.0766 | $0.0443 | $3.0300 | $3.1700 |
| Aug NG | $9.234 | $0.150 | $9.200 | $10.300 |
| | | | | |
| Euro/$ | 1.5721 | 0.0068 | 1.5550 | 1.5750 |
| Yen/$ | 0.9316 | 0.0023 | 0.9200 | 0.9470 |
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
Dominick A. Chirichella
Energy Management Institute
1324 Lexington Ave #322
New York, NY 10128
tel 646-202-1433
fax 801.383.7510
To unsubscribe to this report please respond to this email with the word remove in the subject line.
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.
Friday, July 25, 2008
Dominick A. Chirichella's Friday Morning Energy Market Overview
So far the last trading day of the week is starting out with a bit of position squaring ahead of the weekend. The dollar is on the weak side as some of the dollar bulls take some profits from this week’s firming while the opposite is happening on the oil & NG side after a strong down week. The energy complex has finally rewarded the bears over the last two weeks and now some of them are trading from the cautious side and as such we have a light short covering rally so far today in the energy complex.
This is the second week in a row of the downside correction in energy and the upside correction of the dollar. The biggest mover on the board this week has been NG which is now solidly trading in single digits after falling over $1/mmbtu so far on the week. NG inventories are very comfortable with mostly normal weather around the country.
On the oil side refined products (RBOB & HO) led the market lower after another larger than expected build in product inventories coupled with a further reduction in consumption. For once WTI followed the lead of refined products rather than the opposite. Although this week did not nearly experience the magnitude of the record decline we saw last week it was still a fairly strong down move and one that suggest that the correction is not yet over. Over the last two week WTI is down almost $20/bbl while products are down almost $0.50/gal.
On the currency side the US dollar has once again firmed versus most major currencies. As shown on the EMI weekly price board below the dollar gained a little over 0.5% on the week versus the Euro. The dollar has breached short term resistance levels suggesting further firming over the dollar over the short to medium term. If the dollar does in fact continue to firm we can expect to see further selling in the oil & commodity complex.
| | | EMI Weekly Price Board | | | ||
| | | | | | | |
| | Current | Change | Change | % Change | Weekly | Range % of |
| | Price | From | for | For | Range | Fri Close |
| | 7:57 AM | Thurs | Week | Week | | |
| Sep WTI | $126.23 | $0.74 | ($2.65) | -2.06% | $8.53 | 6.62% |
| Aug HO | $3.5966 | $0.0295 | ($0.0949) | -2.57% | $0.2495 | 6.76% |
| Aug RBOB | $3.0833 | $0.0239 | ($0.0876) | -2.76% | $0.2355 | 7.43% |
| Aug NG | $9.424 | $0.101 | ($1.146) | -10.84% | $1.910 | 18.07% |
| Sep 08 Cracks | | | | | | |
| RBOB Crack | $4.029 | $0.31 | ($0.50) | -10.99% | $0.88 | 19.44% |
| HO Crack | $25.961 | $0.48 | ($0.91) | -3.40% | $1.66 | 6.18% |
| 321 Crack | $11.266 | $0.365 | ($0.63) | -4.78% | $1.137 | 8.57% |
| | | | | | | |
| Euro/$ | 1.5696 | 0.0080 | ($0.0100) | -0.63% | $0.0316 | 2.00% |
| Yen/$ | 0.9338 | (0.0004) | ($0.0046) | -0.49% | $0.0173 | 1.84% |
Good week for the bears, another bad week for the bulls. However the energy bulls have had a great run so far this year. Even with a pretty decent price decline the oil complex is still the best show in town showing gains of over 30% year to date. There is no other class of investment vehicles that are showing year to date returns greater than the energy complex. With equities still down about 15% on the year the investor is still going to be looking at energy as a viable investment alternative and as such we may begin to see a new round of money flows coming into the complex as many begin to view the correction as another good buying opportunity.
Further adding to the cautiousness of the current declining trend is all of the problems that Hurricane Dolly caused this week in the Gulf. None of the problems were major or even significant but all coupled together they will probably result in a decline in both crude oil and refined product inventories when next Wednesday’s report is issued by the EIA. Also the numbers could be further skewed as a result of the closure of a major portion of the Mississippi River to barge traffic this week.
Also lets us not forget all of the normal Geopolitical hotspots. The Nigerian group MEND is once again threatening to disrupt supply over the next month or so as they warned they may interrupt some of the pipelines. An yes there is Iran. The saga continues as now the feisty Iranian President is once again insisting in the media that Iran will not stop its enrichment program. Both of these issues are likely to gain the attention of the oil bulls next week.
The market is in a short term downside correction. By no means is oil or NG poised to fall back to the levels from a few years ago. This is still a downside correction in a long term uptrend. All of the reasons why the market has been in a long term uptrend are still alive and well. We still believe the market has a bit lower to go but we are beginning to view the correction as starting to lose some momentum. We could see a bit of a relief rally next week as all of the above items begin to emerge with the oil & ng inventory reports likely to play a role in the direction of the market during the second half of the week.
The specs who are still on the short side should view the market with caution and work with very tight stops. The buy side hedgers should continue to look for forward hedging entry opportunities.
Currently prices are firm for energy and weaker and mixed for the dollar.
| Current Expected Trading Range | Expected Trading Range | |||
| | 7/25/08 | Change | Low | High End |
| | | From | End Support | Resistance |
| | 7:57 AM | Yesterday | | |
| Sep WTI | $126.24 | $0.75 | $121.00 | $128.00 |
| Aug HO | $3.5966 | $0.0295 | $3.5200 | $3.7000 |
| Aug RBOB | $3.0833 | $0.0239 | $3.0300 | $3.1700 |
| Aug NG | $9.424 | $0.101 | $9.200 | $10.300 |
| | | | | |
| Euro/$ | 1.5696 | 0.0080 | 1.5550 | 1.5750 |
| Yen/$ | 0.9337 | (0.0005) | 0.9200 | 0.9470 |
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
Dominick A. Chirichella
Energy Management Institute
1324 Lexington Ave #322
New York, NY 10128
tel 646-202-1433
fax 801.383.7510
To unsubscribe to this report please respond to this email with the word remove in the subject line.
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.
