Tag Archives: Distillates

Energy: Lower Track This Morning; Looking Outside For Direction

by on January 20, 2012

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CRUDE OIL MARKET FUNDAMENTALS: March crude oil prices traded down to a new 3-session low during the initial morning hours, which leaves this week’s high of $102.24 as resistance. Early weakness in the crude oil market comes from a rally in the US dollar and slight weakening trend in US equity markets. There appears to be fresh concerns regarding European demand following reports that Swiss refiner Petroplus was putting one of its 5 refineries up for sale, with the prospect of selling two more. The market also appears to have an interest in debt swap talks in Greece, which so far has been a slow and tedious process especially since bondholders are expected to take more than a 60% loss on their investment. Meanwhile, weakness this morning could be tempered by expectations that EU leaders will reach an agreement on an embargo of Iranian oil as early Monday. Recent price action in March crude oil could be seen as a bearish victory in the wake of yesterday’s unexpected crude inventory draw. EIA crude stocks fell 3.438 million barrels, quite different than expectations for a 2.0 million barrel build. While some traders viewed the large 3.7 million barrel gasoline build and fall in demand seemed to offset the large crude inventory decline. EIA crude stocks are 4.52 million barrels below year ago levels but stand 9.09 million barrels above the five year average. One of the key factors behind the surprisingly large draw came from a sharp fall in crude oil imports for the week, down to 8.265 million barrels per day from 9.907 million barrels the previous week. The refinery operating rate was down 1.9% to 83.7%, which compares to 83.0% last year and the five year average of 83.7%. The drop in the refinery rate was partially seasonal as operations begin to prepare for seasonal maintenance. The intermediate price trend continues to favor the bear camp, with downside targeting $98.50. Swing high resistance stands at $103.19.

PRODUCT MARKET FUNDAMENTALS: GASOLINE: March RBOB prices trended lower throughout the overnight and early morning hours as they remained inside of yesterday’s range. It appears that the market is digesting yesterday’s unexpectedly large inventory build in the face of the Hovensa refinery closure. Prices took yesterday’s EIA data that showed a 3.717 million barrels decline in gasoline stocks hard. Current inventory levels are 150,000 barrels below last year but 4.274 million above the five year average. The other negative factor in yesterday’s report was the fall in average total gasoline demand for the past four weeks, which was down 6.1% compared to last year. Gasoline imports came in at 553,000 barrels per day compared to 444,000 barrels the previous week. This week’s price action and advance to the highest level since August 2nd keeps the bull camp in charge. However, further weakness this morning below $2.8097 would be a negative.

HEATING OIL: March heating oil continued to hover around the 200 day moving average during the overnight session ($3.0372), and it also remains trapped inside of yesterday’s range. Prices broke down yesterday in response to EIA inventory data that showed continued weakness in distillate demand. While the weekly stocks figures showed a smaller than expected build of 438,000 barrels, demand from an abnormally warm winter hangs over the market. EIA distillate stocks stand 17.796 million barrels below last year but 189,000 above the five year average. Distillate imports came in at 219,000 barrels per day compared to 163,000 barrels the previous week. Average total distillate demand for the past four weeks was down 4.43% compared to last year. EIA Heating oil stocks fell 2.263 million barrels last week, but the 33.308 million barrel reading is the lowest for this week since 2008. The breakdown in March heating oil prices from last week’s high of $3.1286 continues to respect downtrend channel resistance at $3.0445. The short term price trend favors the bear camp, with targeting below at $2.9580.

TODAY’S ENERGY MARKET GUIDANCE: The crude oil complex has taken a lower track this morning and continues to look to the outside market for direction. The fundamental backdrop is a slight negative for the complex, but geopolitical risks (Iran) and recent boost in risk appetites offer support. February crude oil expires today, and that could be a factor injects an added level of volatility.

Energy: In the Process of Recovering From Recent Rout

by on May 17, 2011

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CRUDE OIL MARKET FUNDAMENTALS: Overnight pressure in the crude oil market seemed to come from economic slowdown fears, ongoing Eurozone credit challenges and prospects of another weekly inventory build. The crude oil market may have also come under pressure from early strength in the US Dollar. However, it seemed that sentiment began to shift in favor of the bulls during the early morning hours. Perhaps the effects of fires in Alberta Canada that forced a number of oil companies to close operations, potentially disrupting supplies, could be offering up a degree of support. While that news seemed to offer little support Monday afternoon, it could become a supportive factor in the near term. During Monday’s action, it appeared that the plunge in June RBOB to a new 2 month low was a force that weighed on crude oil prices. It is possible that the early gains in June RBOB this morning are offering up a measure of support for crude oil. There were also reports this morning indicating that the Chair of Libya’s National Oil Corporation was missing, and that maybe taken as a sign that Gaddafi forces are slowly falling apart. By and large, July crude oil appears to be in a wait and see pattern, as Eurozone debt woes circulate and US inventories are expected to show another weekly build. Expectations for this week’s EIA inventory report are for US crude oil supplies to post their fourth consecutive gain, with estimates ranging from 1.0 to 1.3 million barrels. The price action in July crude oil continues to grind lower, with Monday’s decline coming on a pullback in volume. The grind lower has defined a trading range with topside resistance at $101.20 and support below at $95.78. The intermediate term trend favors the bear camp for another push lower, but it probably takes another setback in risk appetites from disappointing headlines out of the Euro zone or soft US economic data to drive trade lower today.

GASOLINE: After making a lower low overnight, June RBOB prices appear to be in the process of rebounding. June RBOB slide below the $3.00 level Monday and reached its lowest level in 2-months, as flooding fears along the Mississippi River receded. US cash gasoline prices in the Gulf came under pressure Monday following the US Army Corps of Engineers decision to open the Morganza spillway, and that is a key decision that could help nearly 12% of US refining capacity from closing. As the fears of flooding receded, there seemed to be liquidation in the cash market from traders who stocked-up on supplies of gasoline and heating oil ahead of the potential flooding. Meanwhile, consensus estimates for this week’s EIA inventory report call for a build in the range of 1.0 to 1.25 million barrels. This would mark the second build in a row. The market will also be paying attention to demand figures to gauge the impact that higher prices, which were in the range of $3.3850 to $3.0220 during the report window. In fact, there were signs of demand destruction with the latest data out of Italy that showed the country’s demand for refined fuel products declined by over 1.5%, largely in response to a drop in auto gasoline demand. The technical outlook for June RBOB has reached oversold levels after the latest 5 day slide that has trimmed $0.50 in value. It is possible that June RBOB could garner a measure of support from the 100 day moving average below at $2.8967. Short term resistance comes in at $3.02.

HEATING OIL: June heating oil prices punched down to a new 7-day low overnight and managed to close the May 9th gap in the process. The positive rebound from that support level and subsequent move back into positive territory this morning provides the bulls with the short term edge. The cash market trade for distillates bounced during Monday’s sell-off in the future market, which favors an upside rebound in the session ahead. Expectations for this week’s EIA inventory report are for distillate stocks to show a gain in the range of 250,000 to 500,000 barrels. The short term trend in June heating oil favors the bear camp, but a move back above resistance at $2.94 would change that stance. The early morning rebound from a new 7-day low provides the bull camp with the early advantage.

TODAY’S ENERGY MARKET GUIDANCE: The crude oil complex appears to be in the process of recovering from the recent rout. June RBOB is the weakest of the group and largely responsible for dragging the complex lower Monday. The overnight move into a lower low and successful rebound provides the bull camp with upside potential. June heating oil seems to have the cleanest pattern, with a successful test of gap support and upside reversal. Near term targeting in June heating oil comes in at $2.9400.

Energy Market Commentary – 2010.06.10

by on June 10, 2010

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CRUDE OIL MARKET FUNDAMENTALS: Overnight developments create a positive backdrop for Crude oil again today. A combination of a friendly Spanish debt auction and confirmation of better than expected May Chinese export data also appears to be supporting the energy complex. Inside the Chinese export figures, crude oil imports actually declined 15.7% from the record levels seen in April, but they remained up 4.4% from year ago levels. Global oil demand prospects also received another bullish lift yesterday from a upward (+1.98%) revision from the IEA for 2010 energy demand, but those forecasts were made off what they call an improving economic condition. This reasoning seems to run counter to comments from OPEC on Wednesday that suggested global financial uncertainty has continued to be a drag on demand for crude oil. However, in light of the favorable economic headwinds this morning, crude oil closes in on the upper end of the recent trading range at $75.40, which is a level that has been an obstacle during the previous three rally attempts. EIA crude stocks fell 1.829 mln barrels for the second straight week (that has not happened since January) and with inventories coming in much lower than some street estimates, that has also helped to tamp down oversupply fears somewhat. Still, implied demand has not clearly increased yet and that remains a key driver for the energy trade going forward. Crude oil imports for the week stood at 9.535 million barrels per day compared to 9.455 million barrels the previous week. The refinery operating rate was 89.10% up, 1.60% from last week compared to 85.85% last year and is the highest level since July 2008. In short, an improvement in sentiment has bolstered crude, but to extend above the late May and early June highs probably requires very significant equity market gains. The bulls have control to start today, with short term support seen at $73.72; but we also see fundamental headwinds once the July crude contract reaches the late May high of $75.72.

PRODUCT MARKET FUNDAMENTALS: GASOLINE: Positive economic headwinds created by strong Chinese export data boosts sentiment this morning for RBOB. This builds on an impressive performance seen Wednesday that provided July RBOB with a bullish chart tilt. OPEC said in their monthly outlook report that global refinery runs will probably stay low, while activity in the US will increase. While EIA data Wednesday showed gasoline stocks fell only 8,000 barrels the trade was expecting a decline of 400,000 barrels and therefore gasoline stocks are still 17.327 million barrels above last year and 10.543 million above the five year average. Furthermore, total gasoline demand continued to lag and for the past four weeks was down 1.01% compared to last year. Gasoline imports came in at 788,000 barrels per day compared to 954,000 barrels the previous week. However, the short term trend for July RBOB points upward, until the July contract retests resistance up at $2.10. While there might be initial resistance at $2.05 this morning the gasoline market is likely to claw its way even higher.

HEATING OIL: The tone this morning has a friendly slant for heating oil, as the market is being cheered on by positive export data in China and by favorable global demand estimates from the IEA. The trend for July heating oil so far this week is higher, favoring a continued push toward the 2.04 level. Wednesday’s highs of 2.0220 provided only minor resistance overnight. EIA heating oil stocks rose 293,000 barrels and are 4.273 million barrels above last year and 7.691 million above the five year average. Distillate stocks at 154.824 million barrels registers another new record high reading for this week. The previous record was posted in 2009. EIA distillate stocks rose much more than expected by 1.836 million barrels and stand at 5.106 million barrels above last year and 30.988 million above the five year average. Distillate imports came in at 236,000 barrels per day compared to 211,000 barrels the previous week. Average total distillate demand for the past four weeks was up 12.14% compared to last year. Diesel prices slumped for the 4th consecutive week, but prices remain $0.45 above year ago levels

TODAY’S ENERGY MARKET GUIDANCE: For the time being the market is upbeat on demand prospects and that helps the market play down or discount unfavorable crude, gasoline and heating oil stocks evidence.

Energy Prices Should Not Be This High – Or Should They?

by on April 29, 2010

The build in distillate stocks in the EIA numbers this week is keeping storage levels at record high levels for this time of the year. With June heating oil prices trading close to the highs for the year in the wake of these bearish numbers, Congress and those pushing for speculative limits on futures trading will probably think they have found another “smoking gun.”

But these higher prices are really signaling the threat of even tighter energy supplies ahead and the inability of the world to meet its growing demand for energy “products.” This comes from growing individual transportation needs, particularly in the developing world, and the lack of expansion in global refining capacity. In other words, the market is sending a message that some don’t want to hear!

As we point out in our recent special report Natural Gas: Positioning for a Major Bottom, the market will soon be forced to turn to natural gas for individual transportation needs, and that will more than likely result in natural gas prices finally joining the historical commodity price explosion.

The pundits are sure to doubt the validity of the natural gas price rally, as supplies are also flush. But world needs more energy output, and all sources are destined to become more expensive.



Energy Market Commentary – 2009.01.20

by on January 20, 2009

CRUDE OIL MARKET FUNDAMENTALS: Crude oil fell sharply overnight as there seem to be a number of factors weighing on prices that could eventually pressure the market below the December lows. Bearish outside market action with the Dollar posting strong gains and equity markets sagging is lowering the appeal of physical commodities as an inflation hedge and adding to the selling incentive in crude oil. Geopolitical factors are no longer providing support since the Russian/Ukraine gas dispute has been resolved and Israel/Hamas has apparently agreed to a Gaza ceasefire. But we suspect oil demand destruction fears amid signs of a deepening global economic recession continues to be the main issue driving oil prices lower. Problems in the UK banking sector and weaker than expected economic news from China may have the market thinking that last week’s lower oil demand predictions for this year by the EIA, IEA and OPEC are understated. In fact, market sentiment overnight has been undermined by a major investment bank predicting global oil demand to drop by at least 1.6 million barrels a day this year. It also appears that OPEC hasn’t cut enough to mop up excess world supplies considering the high level of US and OECD oil stocks and rising supplies of oil being stored offshore on supertankers. With oil supplies at the Cushing, OK delivery point at a record level, the expiration of the Feb crude oil contract today is likely adding to market volatility and could exacerbate the selling activity in today’s session. While the fundamental setup clearly favors the bear camp, the technical setup also leaves the market with ample selling capacity. The January 13th Commitment of Traders report with Options for Crude Oil showed the “combined” spec and fund net long position at 115,919 contracts as of early last week. Therefore, if economic conditions continue to worsen and the Dec low fails to hold, an eventual test of the $30 per barrel price level looks possible for March crude oil.

HEATING OIL: March heating oil has fallen off sharply in the overnight trade. The market is being undermined by the global demand outlook turning increasingly bearish now that the Russian gas dispute has been resolved and since China’s economy is showing further signs of weakening. A jump in China’s urban unemployment rate and fears that slower growth will result in greater diesel exports is certainly a concern weighing on heating oil prices. When you combine weakening global demand with US distillate demand sinking to a 5 year low amid a sharp contraction in the shipping and trucking industries, the situation could push March heating oil back to test the December lows. Temperatures in the US heating region are expected to moderate this week from last week’s frigid conditions and that takes away another recent supportive factor from the market. The January 13th Commitment of Traders report with Options for Heating Oil showed the “combined” spec and fund net long position at 21,711 contracts as of early last week. But we don’t think this market will become sufficiently oversold until the combined COT shifts to a net short position.

GASOLINE: With economic conditions clearly sliding, it’s not too surprising to see gasoline being pulled lower by the macroeconomic situation. The recent price support from improving refinery margins and some refinery glitches is starting to fade. With gasoline stocks still rising and demand still sliding it is clear that the supply/demand setup continues to favor the bear camp. A break under the 40 day moving average in March gasoline that comes in today near $1.1175 could inspire more chart based selling. With forecasters pushing an economic recovery back towards late this year or even next year certainly raises the odds for March gasoline to retest the December lows. With the January 13th COT report with options for gasoline showing the combined fund and spec net long position at 56,989 contracts as of early last week also leaves the market with ample selling capacity.

API and EIA Energy Stocks Report – 2008.12.24

by on December 24, 2008

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  • EIA crude stocks fell 3.101 million barrels and are now 26.488 million barrels above year ago stock levels. Also, EIA crude stocks stand 7.8 million barrels above the 16 year average. Over the last 4 weeks, crude stocks are down a combined 2.640 million barrels. Crude oil imports for the week stood at 9.118 million barrels per day compared to 9.673 million barrels per day the previous week.
  • The refinery operating rate stood at 84.68% up 0.56 from last week and compared to last year’s rate of 88.09% and the 5yr average rate of 90.6%.
  • EIA gasoline stocks rose 3.3 million barrels and are now 2.656 million barrels above the 16 year average. Compared to year ago levels, gasoline stocks are at a 5.205 million barrel deficit. The net change in gas stocks over the last 4 weeks has been a rise of 6.82 million barrels.
  • Gas demand stood at 8.867 million barrels per day which is 579,000 barrels per day below year ago. Gasoline imports came in at 1.254 million barrels per day compared to 802,000 barrels per day the previous week.
  • EIA distillate stocks rose 1.814 million barrels and stand at 1.0 million barrels above last year’s level. Distillate demand stood at 4.102 million barrels per day compared to 4.09 million barrels per day the previous week and 550,000 barrels per day below year ago.
  • Heating oil stocks fell 687,000 barrels and stand at 41.165 million barrels, which leaves stocks 735,000 barrels below year ago.

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Chart of The Day: Breakeven of Hydrocarbon Production

by on December 3, 2008

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Ultimately we see a slide to the vicinity of $40 crude oil as removing a series of alternative energy sources from the world equation. In fact, seeing crude prices fall below $38 would mostly leave classic oil fields as the only viable source of supply.

Hydrocarbon Cost of Production

Hydrocarbon Cost of Production

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