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CRUDE OIL MARKET FUNDAMENTALS: March crude oil prices experienced a mixed to slightly higher trade overnight as they await this morning’s US jobs data and further developments out of Egypt. Growing turmoil in Egypt, with a “Day of Departure” rally scheduled for today, continues to provide a modest bid under the crude oil market. Brent crude prices traded higher during the early morning hours, but off of the extreme levels registered Thursday. While supplies continue to flow through the Suez Canal and the SUMED oil pipeline, there remains fear that the unrest will spread to other countries and create supply disruptions. In the meantime, there appears another drag hanging over the crude oil market coming in the way of the latest negative reversal in the Euro currency. It appears that ECB’s Trichet seemed to backpedal from recent comments on Eurozone inflation, which provided a sort of game changer within the currency markets, and that could become a factor that begins to bolster the US Dollar and pressure crude oil prices. There was data released overnight from India that indicated a nearly 8.0% boost in their crude oil sales compared to year ago levels, but that seemed to offer little upside in crude oil prices. There were also recent comments from the IEA that indicated stronger-than-expected demand for crude oil that has come in response to the global economic rebound. Looking forward, March crude oil seems to be focused on this morning’s US Non-Farm Payrolls number, which is expected to show its fourth straight month of gains and provide further clues on the health of the US economic recovery. This week’s action in March crude oil has coiled inside of a tighter trading range that has seen a decline in volume, which portends a near term break out ahead. The bull camp continues to have the upside advantage with support below at $90.00. A move below $88.50 would mark a short term top.
GASOLINE: March RBOB prices are higher during the early morning hours and continue to be the upside leader within the crude oil complex. Early gains in March RBOB during yesterday’s session came from a rally in European gasoline prices to fresh 28-month highs. Gasoline stocks held at the Amsterdam-Rotterdam-Antwerp storage hub were down 2.0% on the week, and that seemed to provide a measure of support toward European gasoline prices. Prices also seemed to garner support from positive US economic data that pointed to an ongoing economic recovery, which bolstered hopes for increased gasoline demand. Some of the US cash markets were also supported by another refinery glitch in Texas that neared closure due to the freezing temperatures. While the short term fundamentals stack in favor of higher RBOB pricing, there are concerns that the lack of progress away from recent congestions and declining open interest suggest a distribution type of trade taking place. The short term remains up for now, but weakness below support below at $2.4850 would confirm a short term top and favor more weakness down toward $2.43.
HEATING OIL: March heating oil prices appeared to be on the mend this morning as they tried to recover from Thursday’s negative reversal. March heating oil registered a bearish reversal yesterday after it posted new highs for the rally earlier in the session, which casts a short-term negative bias over the market. There are also fears that exploding heating oil crack spread that have surged over $25 per barrel is likely to generate a glut of supply going forward. There was also recent news from the US Department of Energy that they decided on three firms to take up half of the heating oil reserves that they plan to sell. March heating oil has carved out a short term range this week between $2.8040 and $2.7450. A decline below the lower end of this range would put the bears on top for downside targeting coming in at $2.70.
TODAY’S ENERGY MARKET GUIDANCE: The crude oil complex is fractionally higher to start this morning and faces some market moving events in the hours to come. This morning’s US jobs number is a key item, and a number that falls short of expectations could hamper risk appetites, lower demand expectations and weigh on prices. There are also the ongoing tensions in Egypt that continue to lend support to the complex. While the price trends point higher in the short term, they have edged down toward are downside pivot levels.
Energy: Crude Complex Remains Vulnerable to Headline Risk
by Dave Hightower 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.