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CRUDE OIL MARKET FUNDAMENTALS: Crude oil has seen a choppy to lower trade overnight as the market weighs a sharp decline in product stocks against a jump in oil supplies. February crude oil is starting to slip back after the API inventory report showed an unexpected 1.7 million barrel rise in crude oil stocks, which was particularly bearish since imports fell sharply while refinery operations edged only slightly lower. But a weaker trade in crude oil has been somewhat limited by a much sharper than expected declines in both gasoline and distillate stocks which to a certain extent is raising optimism that fuel demand is starting to recover. The cold temperature forecast has certainly been a key element driving the whole oil complex higher over the past two weeks as rising winter heating demand is clearly cutting through heating fuel supplies. With most economic reports generally stronger this month, including yesterday’s reading on consumer sentiment, the oil markets seems to have regained a more optimistic view for fuel demand to improve given the signs that economic conditions are starting to strengthen. Certainly news that China has agreed to raise oil imports from Kuwait by 50% next year after also lifting import contracts with Saudi Arabia and Iraq supports the view that global oil demand is starting to recover. Escalating geopolitical tensions with Iran along with the latest terrorist attempt also has oil markets skittish over supply. However, in today’s trade the EIA inventory report will likely set the early tone with most traders expecting a nearly 2 million barrel decline in crude oil stocks. But seeing API report an unexpected rise in crude oil stocks may be a sign of things to come since we suspect oil supplies could quickly rebuild again early in the New Year given the low refinery operating rate and after refiners have completed year end oil stock reductions for tax reasons. While February crude oil may still have the capacity to stage a rally towards $80 if today’s EIA report is considered bullish, the market is also showing signs of technically stalling up at these price levels. Therefore, we are a bit concerned that an EIA based rally attempt in oil could be cut short by profit taking, while leaving the market vulnerable to a price slide if the inventory news comes in bearish. We also suspect that weaker global equity markets overnight and a firmer Dollar trade in the early going could also inspire year end profit taking in oil unless the market gets a fresh bullish offset. Close in support for February crude oil comes in at $78.34 then near $78.02 and below there near $77.50 with resistance near $79.20 then around $79.60 and above there at $80.
GASOLINE: February gasoline has seen a firmer trade in the early over night action, but given the bullish surprise seen in yesterday’s API report the market’s reaction has so far been a bit disappointing. API reported a 1.4 million barrel drop in gasoline stocks when most traders were expecting a 1 million barrel rise in supplies. Yet, February gasoline continues to run into strong resistance near the $2.05 price level. A mixed report on retail gasoline sales yesterday may be a factor limiting gains since it showed gasoline pump demand was down over 3% on the week last week although up 1.3% from year ago. But perhaps traders are also a bit hesitant to lift the market up too far ahead of today’s EIA report, since the inventory readings from these two agencies (API & EIA) can be very different. A weaker equity trade may be another limiting factor while the gasoline market is also showing signs of being overbought up at these price levels. In the end, February gasoline may still have the capacity to rally back towards the December high if a bullish surprise is seen in today’s EIA report. But we are afraid the market has become technically vulnerable to profit taking up at these price levels which may cut short a fresh rally attempt or cause a swift price retreat, especially if today’s inventory news is disappointing.
HEATING OIL: It certainly looks as if February heating oil is in the strongest position to trade higher after yesterday’s API report showed a larger than expected 3.4 million barrel decline in distillate stocks when most traders were expecting to a 2.1 million barrel decline. While year ago surpluses are still large, the forecast for temperatures to stay cold at least through mid-January certainly gives the potential for fuel supplies to be significantly trimmed back in the weeks ahead, especially since refinery operations remain so low. But so far gains in heating oil have been limited overnight and we are somewhat concerned that the market is becoming a bit short-term overbought up at these price levels following a 22 cent rally from the December low. Overall, the chart setup for February heating oil remains positive given that the market pushed above the early December high in yesterday’s trade. But February heating oil may need a fresh bullish catalyst to propel prices toward the $2.15 level. But even then we see the market becoming increasingly vulnerable to some year end type profit taking.
TODAY’S ENERGY MARKET GUIDANCE: While the general environment for energy prices remains positive, the rally off the December low leaves markets highly vulnerable to profit taking. Even a rally off a bullish EIA report today may not hold given the market’s short-term technical condition.
Energy Market Commentary – 2009.12.30
by Dave Hightower on December 30, 2009
Below is a sample of our Daily Commentary. To get this comment, and our daily coverage of 15 additional markets and trade ideas, visit futures-research.com for your free 2 week trial!
CRUDE OIL MARKET FUNDAMENTALS: Crude oil has seen a choppy to lower trade overnight as the market weighs a sharp decline in product stocks against a jump in oil supplies. February crude oil is starting to slip back after the API inventory report showed an unexpected 1.7 million barrel rise in crude oil stocks, which was particularly bearish since imports fell sharply while refinery operations edged only slightly lower. But a weaker trade in crude oil has been somewhat limited by a much sharper than expected declines in both gasoline and distillate stocks which to a certain extent is raising optimism that fuel demand is starting to recover. The cold temperature forecast has certainly been a key element driving the whole oil complex higher over the past two weeks as rising winter heating demand is clearly cutting through heating fuel supplies. With most economic reports generally stronger this month, including yesterday’s reading on consumer sentiment, the oil markets seems to have regained a more optimistic view for fuel demand to improve given the signs that economic conditions are starting to strengthen. Certainly news that China has agreed to raise oil imports from Kuwait by 50% next year after also lifting import contracts with Saudi Arabia and Iraq supports the view that global oil demand is starting to recover. Escalating geopolitical tensions with Iran along with the latest terrorist attempt also has oil markets skittish over supply. However, in today’s trade the EIA inventory report will likely set the early tone with most traders expecting a nearly 2 million barrel decline in crude oil stocks. But seeing API report an unexpected rise in crude oil stocks may be a sign of things to come since we suspect oil supplies could quickly rebuild again early in the New Year given the low refinery operating rate and after refiners have completed year end oil stock reductions for tax reasons. While February crude oil may still have the capacity to stage a rally towards $80 if today’s EIA report is considered bullish, the market is also showing signs of technically stalling up at these price levels. Therefore, we are a bit concerned that an EIA based rally attempt in oil could be cut short by profit taking, while leaving the market vulnerable to a price slide if the inventory news comes in bearish. We also suspect that weaker global equity markets overnight and a firmer Dollar trade in the early going could also inspire year end profit taking in oil unless the market gets a fresh bullish offset. Close in support for February crude oil comes in at $78.34 then near $78.02 and below there near $77.50 with resistance near $79.20 then around $79.60 and above there at $80.
GASOLINE: February gasoline has seen a firmer trade in the early over night action, but given the bullish surprise seen in yesterday’s API report the market’s reaction has so far been a bit disappointing. API reported a 1.4 million barrel drop in gasoline stocks when most traders were expecting a 1 million barrel rise in supplies. Yet, February gasoline continues to run into strong resistance near the $2.05 price level. A mixed report on retail gasoline sales yesterday may be a factor limiting gains since it showed gasoline pump demand was down over 3% on the week last week although up 1.3% from year ago. But perhaps traders are also a bit hesitant to lift the market up too far ahead of today’s EIA report, since the inventory readings from these two agencies (API & EIA) can be very different. A weaker equity trade may be another limiting factor while the gasoline market is also showing signs of being overbought up at these price levels. In the end, February gasoline may still have the capacity to rally back towards the December high if a bullish surprise is seen in today’s EIA report. But we are afraid the market has become technically vulnerable to profit taking up at these price levels which may cut short a fresh rally attempt or cause a swift price retreat, especially if today’s inventory news is disappointing.
HEATING OIL: It certainly looks as if February heating oil is in the strongest position to trade higher after yesterday’s API report showed a larger than expected 3.4 million barrel decline in distillate stocks when most traders were expecting to a 2.1 million barrel decline. While year ago surpluses are still large, the forecast for temperatures to stay cold at least through mid-January certainly gives the potential for fuel supplies to be significantly trimmed back in the weeks ahead, especially since refinery operations remain so low. But so far gains in heating oil have been limited overnight and we are somewhat concerned that the market is becoming a bit short-term overbought up at these price levels following a 22 cent rally from the December low. Overall, the chart setup for February heating oil remains positive given that the market pushed above the early December high in yesterday’s trade. But February heating oil may need a fresh bullish catalyst to propel prices toward the $2.15 level. But even then we see the market becoming increasingly vulnerable to some year end type profit taking.
TODAY’S ENERGY MARKET GUIDANCE: While the general environment for energy prices remains positive, the rally off the December low leaves markets highly vulnerable to profit taking. Even a rally off a bullish EIA report today may not hold given the market’s short-term technical condition.
Tags: Crude, Crude Oil, Energy, Gasoline, Heating Oil, RBOB
About Dave Hightower