Tag Archives: Crude Oil

Energy: Market Seems to Be Pricing In Extremely Weak Demand

by on February 2, 2012

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CRUDE OIL MARKET FUNDAMENTALS: March crude oil broke below the $97.00 handle this morning, falling to its lowest level since December 20th. It seems that yesterday’s larger than expected EIA inventory build and new 11-year low in gasoline demand has offset optimism from recent economic data points. The outside market tone is flat to fractionally lower this morning, with slight losses in equity markets and the Euro currency. EIA crude stocks rose 4.175 million barrels, which was about double market expectations. Some traders were concerned over total US product demand, which came in at 17.7 million barrels per day, and that might be indicative of a sluggish economy. Current inventory levels are 4.217 million barrels below year ago levels but 10.405 million barrels above the five year average. Crude oil imports for the week stood at 8.88 million barrels per day compared to 8.853 million barrels the previous week. The refinery operating rate slipped 0.4% to 81.8%, compared to 84.5% last year and the five year average of 83.47%. Some traders saw the drop in refinery capacity as a factor that might have inspired the large build in crude stocks last week. March crude oil has downside support below at its 200 day moving average at $96.22. This level also corresponds with downtrend channel support off of the January high, which adds a little more credence to the level. The early edge goes to the bear camp, with resistance at $98.40 and then $99.49.

PRODUCT MARKET FUNDAMENTALS: GASOLINE: March RBOB prices extended their decline following yesterday’s bearish reversal. The market is growing more concerned over extremely weak US gasoline demand readings at the same time that supply concerns ease over recent refinery closures. Meanwhile, yesterday’s price decline and lower cash prices seemed to inspire modest buying interest. The test will be if that buying interest shows up again this morning. Yesterday’s EIA report showed a larger than expected increase in gasoline stocks of 3.017 million barrels. It is possible that some of that large build came on rising retail gasoline prices that might have weighed on demand. The build reduced the deficit compared to year ago levels to 6.081 million barrels. Average total gasoline demand for the past four weeks was down 7.29% compared to last year. Gasoline imports came in at 1.045 million barrels per day compared to 722,000 barrels the previous week. The early bias favors the bear camp, while the short-trend trend points up until the $2.8360 low comes out. It is possible that the March RBOB is setting up a double top pattern on the short term charts, with support at $2.8537. Confirmation below that support level targets a deeper break toward $2.7740.

HEATING OIL: March heating oil prices are on a slightly lower track during the overnight hours, pressured by weakness in the crude oil market. Yesterday’s price action fell short of Tuesday’s high of $3.0900, reversed and established a lower low. This suggests that the higher prices has encouraged more supply on to the market and caused the rejection in upward action. The negative reversal in heating oil prices came on the heels of a slight EIA distillate inventory decline of 135,000 barrels. EIA distillate stocks are 18.668 million barrels below last year but 7,000 above the five year average. Distillate imports came in at 192,000 barrels per day compared to 146,000 barrels the previous week. Average total distillate demand for the past four weeks was down 1.65% compared to last year. Heating oil stocks slipped 1.256 million barrels on the week and registered their lowest level for this week of the year since 2008. March heating oil prices have support below at $3.0340. Further weakness below this level would mark a breakdown out of recent congestion and point to a deeper break toward $2.97. Near term resistance comes in at $3.0700.

TODAY’S ENERGY MARKET GUIDANCE: The crude oil complex is lower to start this morning, continuing to adjust to yesterday’s weak EIA readings. March crude oil has support below at its 200 day moving average this morning at $96.22. The price pattern off of this week’s high of $101.39 leaves the potential for a further break toward $95.40. March RBOB is closing in on short term support at $2.8537, and further weakness below this level targets a break toward $2.7740. The market appears to be pricing in the extremely weak demand readings and probably needs more refinery problems to tighten supplies and support the market.

Special Report: Fourth Quarter Petroleum Update

by on November 29, 2011

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The recent rise in nearby crude oil prices above $103 didn’t seem to elicit many complaints of excess speculation in the energy markets. Perhaps this was because the move was not accompanied by an increase in speculator net long positions. Regardless, this rally seems to confirm that supply and demand conditions in the market have tightened, even in the face of a possible recession. In other words, the world threw a recession party and the energy complex failed to show up.

Crude oil prices recently topped out a two-month rally on reports that the flow of crude oil from the Seaway pipeline would be shifting directions. Where previously it had flowed north from the Gulf Coast to Cushing, Oklahoma, it was announced that it would now flow from Cushing to the Gulf Coast. This is expected to alleviate the glut of supply at Cushing and ease tightness at the Gulf Coast, where refiners had been using Brent crude and others as feedstocks. This move has had a major impact on the Brent/WTI spreads. Tight North Sea supplies were one of the key factors that sent Brent’s premium to WTI to a record wide level of $28.00 in October. As conditions changed by mid-November, that spread fell below $6.00. While part of the decline in the premium of Brent relative to West Texas Intermediate was aggressive unwinding out of long Brent/short WTI positions, it was also pressured by the flow change in the Seaway pipeline.

This is widely seen as a force that will draw demand back to WTI crude oil and eventually chew down one of the world’s largest supply caches at Cushing and thereby lift WTI prices relative to Brent.

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Oil: A Bottom May Be In Place; 4th Quarter Rally?

by on October 21, 2011

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We think that crude oil could be putting in a significant bottom in the wake of the nearly 35% downdraft from the May high. Economic data appears to be stabilizing, suggesting that the early October low was too aggressive in pricing in a slowdown. We would like to take advantage of potential volatility surrounding the European debt crisis/resolution to position for an extended fourth quarter rally.

The crude oil market has faced a number of negative headwinds during the August-October break that were highly correlated to developments out of Europe. Into the third week of October, the EU debt debacle seemed to be closing in on a near term resolution. Due to the tight “risk-on” and “risk-off” link between other assets and crude oil, a favorable result at the October 23rd EU Summit is likely to lift crude oil prices above their 2 « month trading range. However, there is also the possibility that a disappointing result from the EU Summit could weigh on risk assets. What to do?

The global oil supply and demand balance points to a small deficit in the fourth quarter of 2011. October monthly reports from the IEA and OPEC pegged oil demand growth at around 1.0% for 2011 and 1.5% for 2012. The EIA was a bit more optimistic, calling for 2011 demand growth at 1.5%, increasing to 1.6% in 2012. An average estimate among the agencies called for overall 2011 global oil demand to come in at 88.48 million barrels per day, slightly outpacing production by 0.01%. The IEA’s 60 million-barrel release from strategic reserves worked through the system and helped generate a flat balance sheet in the third quarter of 2011. Using the above growth estimates and assuming a modest, 1.25% increase in OPEC production, the world oil balance would likely to show a small, 250,000 barrel-per-day deficit during the fourth-quarter. For comparison, there was a 110,000 barrel-per-day deficit in the first quarter of 2011 that saw WTI crude oil prices average $100.65 and a 500,000 barrel-per-day deficit in the second quarter that came with an average price of $104.21.

Crude oil built a large base of support during its August through mid-October consolidation between $75.00 and $90.00. In the meantime, prices have closed above downtrend channel resistance drawn from the May high, suggesting a turn higher. Meanwhile, after the 18.7% rally in the first half of October, the market has become short term overbought and is hinting at a near term correction. While there’s potential for a decline in December crude oil back toward $82.42 (a 50% retracement), the longer-term prospects target a decline back towards $96.90. For this reason, we recommend buying a December put to play for a shorter term decline and buying a January call to profit from a longer term advance.

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Energy: Technicals Positive but Overbought

by on October 7, 2011

Below is a sample of The Hightower Report’s 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: November crude oil established a higher high during the early morning hours and climbed back above the $83.00 level. However, a slight pullback in risk appetites, modest profit-taking ahead of today’s September US jobs data and concerns whether this week’s $8.00 rally might be over extended weigh over the market. The price action in November crude oil this week seems to reflect a pullback in fears that the global economy would fall back into a recession, and that leaves this morning’s jobs data as a factor that needs to meet or beat expectations to drive the market higher. Confirmation of US jobs added above the 75,000 level is likely to open the door for November crude oil toward the $85.00 to $87.00 area. In the meantime, there was more chatter out of Iran this morning indicating that most OPEC members would likely leave OPEC production targets unchanged at their December meeting. There were also reports out of Russia overnight indicating that oil refiners in the region might not be able to survive export duty reforms “if” they do not modernize. That is a longer term factor for the market, but something that could gain more traction in the weeks ahead. There has also been talk that index fund rebalancing for 2012 could see weightings on US WTI crude oil to fall and increase for Brent crude oil. While this is a factor that could put downside pressure on US crude prices, a lot can happen in the current environment in 2.5 months. The short-term trend in November crude oil has turned in favor of the bull camp with yesterday’s gains, leaving support at $80.51. Upside resistance comes in at $83.98, then $84.77.

GASOLINE: November RBOB prices have taken a lower track this morning, as they retraced a portion of yesterday’s explosive rally. It seemed that the combination of European financial leaders trying to come to a resolution for struggling regional banks, as well as a risk-on appetite supported the early gains. It also seemed that the relative outperformance of RBOB to its peers in the crude oil complex reflected something more fundamental taking place. Cash gasoline markets in the Northeast yesterday traded higher, bolstered by fears of tightening supply from recent refinery outages and slight uptick in demand. This is expected to continue over the short-term, as a couple of Pennsylvania refineries remain offline. The technical action in November RBOB closed above its late-September swing high of $2.4669, and that provides the bull camp with an intermediate term edge. Short-term support ratchets up to $2.5645.

HEATING OIL: November heating oil prices established a higher high this morning, marking a $0.17 rally from this week’s low of $2.6975. The gains in heating oil appear to be the result of an improving outside market tone, rally in global equity markets and ideas that the global economy might be on a recovery track. It’s possible that the US heating oil market drafted a level of support following inventory data from the Amsterdam-Rotterdam-Antwerp (ARA) storage hub that showed gasoil inventories plunging to their lowest level in 18 months. The short-term price action in November heating oil turned positive during yesterday’s rally and satisfied near-term technical targets at $2.8648. The next level of resistance comes in at last week’s highs of $2.8970. Short-term support this morning comes in at $2.8350, then this week’s swing low at $2.7530.

TODAY’S ENERGY MARKET GUIDANCE: The crude oil complex has taken a lower track heading into this morning’s key economic data on the US labor market. A portion of this week’s explosive rally have come as the market has begun to price in a modest rebound in economic conditions, which leaves this morning’s report as a key determining factor. Market expectations are for September US Nonfarm Payrolls to have increased somewhere in the range of 50,000 to 75,000, and the market probably needs to see something north of 75,000 to extend this week’s gains. Markets across the crude oil complex have become short-term overbought and vulnerable to disappointment.

Favorable Vote out of Germany; Commodities May Get a Lift

by on September 29, 2011

At least in the early going there is a tamping down of the EU crisis with the favorable vote from the Germany. The trade may be thinking, however, that the damage has already been done. Markets may turn now to the US situation and the struggles the Debt Committee is having achieving its goals.

Physical commodities may get a slight lift today with a weaker Dollar and reduced uncertainty out of Europe. There doesn’t seem to be much conviction and a return to September lows is a possibility.

Energy: Crude Complex Remains Vulnerable to Headline Risk

by on September 29, 2011

Below is a sample of The Hightower Report’s 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: November crude oil made an overnight drive below the $80 level and has since rallied nearly $3.00. It appears that the upside reversal action was fueled by a rally in global equity markets and gains in the Euro currency. The German parliament approved power changes in the Eurozone bailout fund, and that is seen as a positive step toward resolving the European debt crisis. This progress has boosted risk appetites and provided a level of support for risk assets like crude oil, and with the tight correlation between crude and equities, it is possible to see more upside follow through this morning. November crude oil has recouped some of the disappointment from yesterday’s larger than expected EIA inventory build. EIA crude stocks rose 1.915 million barrels, but they remain 16.897 million barrels below year ago levels. Also, crude stocks stand 12.842 million barrels above the five year average. Crude oil imports for the week stood at 9.702 million barrels per day compared to 8.351 million barrels the previous week. The refinery operating rate slipped 0.5% to 87.8%, which compares to 85.8% last year and the five year average of 84.01%. There were reports earlier this morning indicating that a key Singapore refinery has experienced another fire, and that has reduced capacity around 350,000 barrels per day. This could be a factor that tightens up the market in the region and provide an added level of support this morning. Talk of a potential strike at a French refinery appears to have been resolved overnight and production has returned back to normal levels. The technical action in November crude oil turned negative with yesterday’s action, but appears to be stabilizing. We see an upside pivot level for November crude oil at yesterday’s midpoint of $82.56. A further advance above that level this morning would set the stage for a further push toward $83.80.

PRODUCT MARKET FUNDAMENTALS: GASOLINE: November RBOB prices broke down below yesterday’s inside day trading range last night but has since turned back into positive territory. A rebound in crude oil prices, weakness in the US dollar and improvement in risk attitudes this morning have helped inspire the turn higher. Yesterday’s EIA weekly gasoline stock report showed an increase of 791,000 barrels, which was slightly below expectations. Meanwhile, current inventories are 7.723 million barrels below last year, but 10.854 million above the five year average. Average total gasoline demand for the past four weeks was down 2.43% compared to last year. Gasoline imports came in at 541,000 barrels per day compared to 692,000 barrels the previous week. Upside reversal action in November RBOB this morning favors the bull camp for a further advance to $2.6450. There is downside support at the September 27th gap of $2.5441 to $2.5284.

HEATING OIL: November heating oil prices broke down to a new three session low overnight that challenged Tuesday’s gap support at $2.8025. The market was able to rebound from that level, helped in part by a positive turn in risk sentiment and US Dollar weakness. Another positive force offering support in the distillate market comes from an increase in diesel demand from the agricultural sector. Wednesday’s EIA report showed distillate stocks rose 72,000 barrels, which was quite a bit less than expected. This brought current inventory levels to 15.911 million barrels below last year, but 6.656 million above the five year average. Distillate imports came in at 150,000 barrels per day compared to 158,000 barrels the previous week. Average total distillate demand for the past four weeks was down 1.04% compared to last year. EIA heating oil stocks fell 770,000 barrels and are 11.555 million barrels below last year. The upside reversal action this morning favors the bull camp and points to a test of yesterday’s high at $2.8970.

TODAY’S ENERGY MARKET GUIDANCE: The crude oil complex extended yesterday’s late day sell-off into the overnight session, but has reversed those losses this morning. The crude oil complex faces a number of catalysts this morning, including a decision by European auditors to approve another round of aid for Greece and a final reading on US Q2 GDP. The complex remains vulnerable to headline risk. A weaker than expected read on this morning’s GDP number has the potential to ignite global recession concerns and pressure energy markets down toward last week’s low.

Energy: Crude Products Under Pressure from Weak Demand Prospects

by on September 14, 2011

Below is a sample of The Hightower Report’s 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: Private industry data Tuesday afternoon showed a much larger than expected fall in US crude inventories last week, and that provided an early lift to October crude oil pries. However, the gains were short lived, pressured by early strength in the US Dollar and fears that the European debt crisis will further limit demand prospects. Risk attitudes flip-flopped overnight, initially under pressure on resistance from Chinese officials regarding a Eurozone bailout but turned friendly earlier this morning on hopes for a euro bond. October crude oil rallied to its highest level since August 4 yesterday, and that seemed to encourage a level of profit-taking overnight. That coupled with ongoing concerns over a potential Greek debt default continue to weigh on demand prospects for crude oil. This was partially seen in yesterday’s Brent crude oil trade, which spent most of the session in negative territory. The October Brent versus WTI crude oil spread narrowed by $2.38 to $21.70. Meanwhile, North Sea Brent crude oil market remains concerned over a tightening supply backdrop, with output expected to fall by nearly 3% in October resulting from oilfield problems. These concerns are reflected in widening contango between the October and November contracts (October at $2.70 premium to November). Looking ahead, the crude oil market faces the latest US Producer Price Index reading, which is expected to slip from July’s level. The market will also react to the latest EIA inventory data, which is forecasted to show a draw of around 3.0 million barrels as a result of Hurricane Irene and tropical Storm Lee. While yesterday’s above average volume breakout was a positive technical development, the lack of follow-through this morning is a concern. In fact, aggressive bears may consider selling strength today near $90.75, risking a move above a 61.8% fib level of the August downdraft at $91.51.

PRODUCT MARKET FUNDAMENTALS: GASOLINE: October RBOB prices established a lower low during the initial morning hours. The brunt of the weakness in prices came from industry data late-Tuesday that showed an unexpected build in gasoline stocks last week. Street estimates for today’s EIA stocks report are for a draw in the range of 750,000 barrels. The demand outlook remains under pressure for the gasoline market, which was highlighted by reports that showed the level of US trucking activity in August falling. Slumping demand concerns intensified, with retail data from SpendingPulse that showed US summer gasoline demand at the near the 2009 lows. The data seemed to indicate a fall in demand during the Labor Day Holiday period, which is normally a strong seasonal period. The early tone in October RBOB favors the bear camp, with support below coming in at the 200 day moving average at $2.7094.

HEATING OIL: October heating oil registered a lower low during in early morning action, as it continues to grapple with waning future demand prospects. While last nights inventory data showed a smaller than expected inventory build, concerns over slowing growth on the back of the European debt crisis continues to dominate the focus. In fact, European distillates have come under pressure in recent sessions on concerns that demand will slip further. That appeared to have a negative impact on heating oil prices during Tuesday’s action, as prices seemed to disregard the positive price action in WTI crude oil. Cash markets in the US also highlight sluggish demand, with narrowing differentials. October heating oil could also be reacting to the conclusion of supply disruptions from Hurricane Irene and Tropical Storm Lee. October heating oil prices slipped down to their lowest level since August 23rd this morning, and that keeps the bear camp in charge. Short term resistance comes in at $2.9834.

TODAY’S ENERGY MARKET GUIDANCE: The crude oil complex is off to a sluggish start this morning, despite private industry data that showed a much larger than expected crude stocks decline. The crude oil market has priced in a hefty draw for today’s EIA data and anything short of 3.5 million barrels probably weighs over the market. We think that these expectations were a key factor in the relative gains in October crude oil yesterday. While the upside breakout above $90.50 is a positive technical development, but it has failed to extend those gains this morning. The product markets appear to be coming to grips with a weak demand backdrop, and could come under added pressure should this morning’s EIA data fall short of expectations.

Gold Under Pressure; Crude Showing Strength; Corn & Soybean Conditions Worsen

by on September 7, 2011

Mixed bag this morning. Gold under pressure and Crude and Copper showing some strength. With stocks up and US Dollar weaker give the impression that sentiment on the economy is becoming more stable. Corn and Soybean crop conditions continue to worsen which should provide some under-pin to the market.

The ‘Risk Off’ Mentality Continues

by on August 19, 2011

Global equity markets continue to slide overnight. Concerns over the European banking industry persist. Fund held positions of long crude / short natural gas are rumored to be getting unwound. This may cause a short-covering bounce in natural gas. Corn and other agricultural markets continue to be pulled down by outside macro-economic influences as opposed to their bullish internal fundamentals.

Energy: If Outside Pressure Continues, Look for Oct to Test August Lows

by on August 19, 2011

Below is a sample of The Hightower Report’s 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: The crude oil market extended yesterday’s declines overnight with a move to its lowest level since putting in its low on August 9th. Growing concerns that the US is slipping into another recession and anxiety over bank troubles in Europe sparked a steep sell-off in global equity markets yesterday, and this continued in the overnight session, pressuring economically sensitive commodity markets like crude oil. It appears that the economic news will be the dominant force on the energy markets again today, particularly if stock market sell-off builds into a full-fledged rout today. The EIA report from earlier this week showed a larger-than-expected build in crude oil stocks, so the supply stats are running bearish as well. President Obama’s announcement yesterday of additional sanctions against the Syrian oil industry is not expected to have a significant effect on the energy market because the US does very little business with that country anyway. The question is whether Europe will toughen its sanctions, and the EU is supposed to be considering that today. Libyan rebels have reportedly seized the last refinery that was held by pro-Gadhafi forces without damaging the refinery at all and that is bearish to prices. This news is probably a little bearish, especially to Brent crude, because it could ease some anxiety over Libyan oil supplies to Europe. After the sharp break yesterday and overnight, October crude oil is coming close to testing the August 9th spike bottom. Key support comes in at the August 9th close of 79.67 (which it already tested overnight) and at the low of 76.15 from that same day.

GASOLINE: The gasoline market is also feeling the pressure from outside market forces, but not quite as severely as crude oil, perhaps because of the supportive EIA stocks data earlier this week, which appears to leave a fundamental underpin to the market. Like crude oil, gasoline continued yesterday’s sell off overnight as global economic concerns put pressure on a wide range of “risky” assets like equities and energies. But the break so far has been mild relative to crude oil, as October RBOB was still more than 17 cents per gallon above the August 9th spike low overnight. This week’s EIA data showed a much larger than expected inventory draw for gasoline, with stocks falling 3.510 million barrels to 13.263 million barrels below year ago levels. Retracement support for October RBOB at $2.6103 and $2.5722 could be tested if equity markets continue to sell off today.

HEATING OIL: October heating oil was also under pressure from outside market forces overnight, as sharply lower equity markets in Asia and Europe put pressure on the energy complex as a whole. Still, the heating oil/distillate end of the complex appears to be holding up better than crude oil, perhaps because the market is in a stocks-building phase ahead of the heating season, which is keeping a fundamental underpin to prices. This week’s EIA data showed distillate stocks rising more than expected, with a build of 2.449 million barrels, but again, that is not too concerning to the market because one would expect them to be increasing at this time of year anyway. Average total distillate demand for the past four weeks was up 5.80% compared to last year. EIA heating oil stocks rose 651,000 barrels and are 11.219 million barrels below last year. Like RBOB, October heating oil has a way to go before it tests the August 9th spike low at $2.7154. Retracement support comes in at $2.6268, with additional support down at $2.7763. Trend line resistance is back up at $2.9423.

TODAY’S ENERGY MARKET GUIDANCE: The crude oil complex will start today’s session under pressure from a diminished economic outlook and other outside market pressure which is raising concerns over future energy demand and is also contributing to a sell-off in risky assets. If the outside market pressure continues today, look for October crude oil to test the August spike lows and for the products to fall under pressure as well.

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