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Energy: Crude Is Looking For a Value Range; Bears Appear To Control Products

by Dave Hightower on August 4, 2011

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CRUDE OIL MARKET FUNDAMENTALS: A weak outside market tone and stronger US Dollar weigh on the crude oil prices to start this morning. The Bank of Japan intervened into the currency markets last night by selling nearly $13 billion in Yen, and that has sparked a sharp upside reversal in the US dollar. Growing concerns about slowing economic growth in the US present the crude oil market with another negative. Another major global bank lowered their world oil demand figures due to the current economic slowdown in the US. This particular company lowered their 2011 increase in demand by about 30.0% to a rate of 88.7 million barrels per day. What is important about their downward revision is that it is likely to follow more downward revisions by other forecasters and government agencies. Yesterday’s EIA inventory data showed US crude stocks rose 950,000 barrels last week, which was in line with expectations. Some traders viewed the minimal build in the wake of a 4.5 million barrel draw in SPR supplies as a slight positive. EIA crude stocks are 3.005 million barrels below year ago levels, but 19.504 million barrels above the five year average. There was a rather notable decline in crude oil imports of more than 7.0% to 9.134 million barrels per day. The refinery operating rate was 89.3%, up 1.0% from last week, and compares to 91.2% last year and the five year average of 89.12%. September crude oil established a new low for the decline in the early morning hours and is on track to challenge the June lows of $90.17. At the same time, this week’s nearly $8.00 slide has created a short term oversold condition, vulnerable to a short covering rally. Short term resistance comes in for September Crude oil at $92.05.

GASOLINE: September RBOB prices are off more than 8.0% from this week’s high to this morning’s low. Prices plunged out of the recent four week trading to the downside yesterday, and they have extended their decline during the early morning hours. September RBOB finished Wednesday’s session down by more than 3.5% after EIA inventory data showed a larger than expected weekly increase of 1.701 million barrels. EIA gasoline stocks are 7.795 million barrels below last year, but 4.038 million above the five year average. Average total gasoline demand for the past four weeks was down 3.63% compared to last year, and it is the lowest reading for the summer season. The weakness in gasoline demand was seen as a primary catalyst for the downdraft. Gasoline imports came in at 845,000 barrels per day compared to 662,000 barrels the previous week. The higher refinery capacity rate seen last week was also viewed as another negative headwind for the gasoline market that is likely to keep the market well supplied. The edge goes to the bear camp, with the next downside support coming in at the July 1st low of $2.8675.

HEATING OIL: September heating oil prices continued their slide overnight, falling to their lowest level since July 7th. Yesterday’s price action confirmed a breakdown out of recent congestion and puts the edge in favor of the bears. The heating oil market sold-off sharply in the wake of yesterday’s EIA inventory data that showed a rise in distillate supplies of 409,000 barrels. EIA distillate stocks stand at 17.432 million barrels below last year, but 7.364 million above the five year average. Distillate imports came in at 205,000 barrels per day compared to 161,000 barrels the previous week. Average total distillate demand for the past four weeks was up 1.69% compared to last year. The soft demand reading in distillates was seen as a key factor behind breakdown. EIA heating oil stocks rose 896,000 barrels and are 12.770 million barrels below last year and 7.584 million below the five year average. September heating oil has gap support below at $2.9926 to $2.9791, with targeting below at $2.96.

TODAY’S ENERGY MARKET GUIDANCE: A rally in the US Dollar, economic growth concerns and sluggish demand readings continue to weigh over the crude oil complex. September crude oil appears to be looking for a new value range as it challenges its June lows of $90.17. It is possible that the decline has run ahead of itself in the short term and vulnerable to a technical rebound. The bears are in charge in the product markets and have finally confirmed a breakdown out of the very tight coiling range.

Energy: Looking to US Numbers for Demand Signals

by Dave Hightower on June 27, 2011

CRUDE OIL MARKET FUNDAMENTALS: August crude oil challenged last week’s low during the early morning hours, which was able to contain early weakness. Concerns over slowing economic growth in the US and China along with the potential of the IEA releasing more supplies on to the market continue to weigh on prices. Brent crude oil prices have led to the downside in recent sessions, and that appears to be the case again this morning. The market seems concerned over the upcoming Greek austerity vote, and some traders suggest that Brent could slip further toward the $100 level. August Brent crude oil slipped into new low ground this morning and challenged its 200 day moving average of $102.25 before rebounding. The weakness in Brent crude oil tightened the differential to WTI back below $13.00. Meanwhile, Iran’s oil minister noted concern over the IEA’s decision to release supplies and added that supply and demand fundamentals in the crude oil market were functioning correctly. It also seems that Libyan rebels are making progress against Gaddafi forces, and prospects that the leader could be overthrown and oil production restored could present the market with even more supply. The Commitments of Traders Futures and Options report as of June 21st showed non-commercial traders were net long 199,077 contracts, a decrease of 22,649. Non-commercial and nonreportable traders combined held a net long position of 229,876 contracts, a decrease of 24,408 on the week. This long liquidation trend by the speculators has taken their net long position to the levels not seen since the 4th quarter of 2010. Money managers cut their long positions to the lowest level since December. It is possible that crude oil could face added liquidation pressure if economic conditions continue to deteriorate. The bear camp has the early morning advantage, but its inability to break below Friday’s low of $89.82 might open the door for a corrective rebound. The bulls need to at least overcome the $91.20 level to turn the tide in their favor.

PRODUCT MARKET FUNDAMENTALS: GASOLINE: August RBOB established a new low for the move overnight and closed in on its 200-day moving average of $2.66. Prices managed to rebound during the early morning hours, helped by weakness in the US Dollar and rebound in global equity markets. The weakness in Brent crude oil relative to WTI crude oil continues to offer RBOB prices another negative headwind to work through. August RBOB prices finished the week with a plunge down to their lowest level since February 18th. However, weekend reports of a refinery flaring at a 360,000 barrel per day operation in Illinois could be a supportive feature situation during today’s session on reports that it could be down for a longer period of time. The Commitments of Traders Futures and Options report as of June 21st showed non-commercial traders were net long 54,161 contracts, a decrease of 7,284. The Commercial traders were net short 58,603 contracts, a decrease of 10,279. The Nonreportable traders were net long 4,443 contracts, a decrease of 2,993. Non-commercial and nonreportable traders combined held a net long position of 58,604 contracts, for a decrease of 10,277 in their net long positioning. The long position remains at relatively lofty levels, which leaves potential for more long-liquidation. The bear camp has the edge to start this morning, with resistance above at $2.7370 and support below at $2.66.

HEATING OIL: August heating oil prices slid down to their 200-day moving average during the early morning hours, but so far it has been able to rebound. This took the August contract down to its lowest level since February 8th. The Commitments of Traders Futures and Options report as of June 21st showed non-commercial traders were net long 25,258 contracts, a decrease of 10,642. The Commercial traders were net short 37,607 contracts, a decrease of 12,431. The nonreportable traders were net long 12,349 contracts, a decrease of 1,790. Non-commercial and nonreportable traders combined held a net long position of 37,607 contracts, a decrease of 12,432 during the week. The bears maintain the early advantage, but that would begin to change on a move above $2.7850. The short term down trend pattern remains intact till prices can overtake $2.8340 today.

TODAY’S ENERGY MARKET GUIDANCE: The crude oil complex has been able to rebound from its worst overnight levels, but remain in negative territory. Markets are keying in on this morning’s flow of US economic data on Consumer Spending and Chicago Manufacturing for demand clues. Further disappointment in this morning’s number could prompt some economists to ratchet down their growth outlooks. Meanwhile, the short term trends across the complex favor the bears.

Energy: Short-Term Price Trend Points Lower

by Dave Hightower on June 16, 2011

CRUDE OIL MARKET FUNDAMENTALS: July crude oil prices traded in a sideways fashion during the overnight and initial morning hours, following yesterday’s wide-range bearish reversal. The plunge in prices down to the lowest level since February 18th has begun to usher in more concerns over demand. The outside market tone is slightly negative, with weaker global equity markets and a rally in the US dollar to a new 3-week high. It also seems that the crude oil’s price direction is highly dependent to risk appetites and the unfolding Greek debt situation. The IEA made the news wires early this morning indicating that they were prepared to release strategic reserves of crude oil to support the global economy if needed. While they raised their demand forecasts for the next 5-years by an annual rate of 1.3%, they continue to monitor Saudi Arabia’s contribution of added supplies to satisfy current demand levels. For now, July crude oil is trying to consolidate recent losses, while it measures whether current economic slowdown fears will impact demand in the second half of 2011 and whether prices should be at a lower level. Yesterday’s EIA report showed a larger than expected decline of 3.406 million barrels. Perhaps a portion of the unexpectedly larger draw came from the closed Keystone Pipeline last week, which helped draw 1.0 million barrels out of Cushing. EIA crude stocks stand 2.45 million barrels above year ago levels and 21.923 million barrels above the five year average. Crude oil imports for the week stood at 8.638 million barrels per day, compared to 8.600 million barrels the previous week. The refinery operating rate was 86.1%, down 1.1% from last week. There was heavy volume during Wednesday’s down draft that rivaled levels seen during the early May slide, suggesting that the crude oil market could be fishing for a near term bottom. The short term trend in July crude oil favors the bear camp, with downside support below at $94.45, then the February low of $93.10.

PRODUCT MARKET FUNDAMENTALS: GASOLINE: July RBOB traded higher during the early morning hours after a negative wide-range reversal Wednesday. Yesterday’s action shifts sentiment back in favor of the bear camp after prices plunged to its lowest level since May 24th. Yesterday’s EIA gasoline stocks report showed a build of 573,000 barrels, which was slightly under consensus estimates. Gasoline stocks are 3.275 million barrels below last year, but 5.254 million above the five year average. Average total gasoline demand for the past four weeks was up 0.50% compared to last year. Gasoline imports came in at 1.115 million barrels per day compared to 1.158 million barrels the previous week. While there was talk of tightening supplies in the cash market due to the slide in imports, the weak outside market tone seemed to prevail. The bear camp has the edge after Wednesday’s negative trade, with support today coming in at $2.9235.

HEATING OIL: July heating oil began the overnight trade with a higher open, but has since leaked most of those gains. Wednesday’s EIA distillate stocks report showed a 105,000 barrels draw, instead of an expected build. The report showed a rather large decline in Midwest supplies, which was attributed to a boost in agricultural demand after a delayed start to planting. EIA distillate stocks stand at 15.801 million barrels below last year, but 6.737 million above the five year average. Distillate imports came in at 125,000 barrels per day compared to 155,000 barrels the previous week. Average total distillate demand for the past four weeks was down 3.57% compared to last year. EIA heating oil stocks rose 1.317 million barrels. Weak distillate demand highlighted in the EIA report is a concern that might not justify prices above the $3.00 level. Wednesday’s downdraft leaves the bear camp with the short term advantage. Near term support stands at yesterday’s low of $2.9702, then the $2.9500 level.

TODAY’S ENERGY MARKET GUIDANCE: The crude oil complex is off to a positive start after suffering major declines during yesterday’s session. The short-term price trend across the complex favor lower pricing ahead. While there appears minor evidence of bargain hunting this morning, the risk to the market is if higher demand levels are not seen later in the year. This is a factor that would support $85 to $90 per barrel crude oil. There is an active flow of US economic data this morning and there will be a great deal of attention paid to the Greek debt situation.

Economic Slowing Fears Persist; US Jobs Data the Main Focus

by Dave Hightower on June 3, 2011

Path of least resistance seems to be downward today for most physical commodities. Non-Farm payroll estimates have been revised lower over the past couple days. Significant declines in Registered COMEX Silver warehouse stocks.

Concerns About Global Economic Slowing; OPEC Talking About Increasing Production

by Dave Hightower on June 2, 2011

Concerns about global economic slowing continue. US stock market seems to be factoring in a disappointing jobs number this Friday. OPEC is talking about increasing production by one million barrels per day at an upcoming meeting. US crops face uncertain weather over the coming weeks.

Energy: Bulls Have Edge from Internal and External Developments

by Dave Hightower on May 31, 2011

Energy prices were up sharply overnight primarily on the weaker Dollar, but also because of reports of fresh tensions in Yemen and perhaps because of improved global macro economic psychology. Apparently global equity markets were lifted sharply off ideas that some Japanese manufacturing might be restarted soon and that might in turn alleviate some of the knock on slowing seen in the rest of the world, as a result of the Japanese disaster. On the other hand, the Dollar was lower against the Euro after on improved prospects for a Greece bailout, or perhaps even from news that Greece might be allowed to cut its value added tax in an effort to stimulate its troubled economy. In the end, news that Al Queda had captured a town in Yemen has raised concerns over a rise in overall Middle East tensions. On another front, up to 120 Libyan military officers have defected in recent days and that could increase uncertainty toward the Libyan oil situation. In the end, a favorable macro economic track and a weaker Dollar would seem to give the bull camp an edge, especially if there is a small measure of Middle East supply uncertainty off events in Yemen and Libya mixed into the equation. Perhaps the most supportive news overnight is the prospect that favorable Japanese manufacturing talk was joined by oil market talk, that the Chinese were set to expand energy import activity again. The Commitments of Traders Futures and Options report as of May 24th for Crude Oil showed Non-Commercial traders were net long 254,314 contracts, a decrease of 991 contracts. The Commercial traders were net short 282,615 contracts, a decrease of 2,721 contracts. The Non-reportable traders were net long 28,302 contracts, a decrease of 1,729 contracts. Non-Commercial and Non-reportable combined traders held a net long position of 282,616 contracts. This represents a decrease of 2,720 contracts in the net long position held by these traders. With the highest level in July crude oil since May 11th, it is possible that some of the initial buying this morning is technically related buying.

GASOLINE: The gasoline market was able to extend last week’s rally through the holiday weekend, although prices are almost sure to end May with their first monthly loss since August of last year. While the traditional start of the US summer “driving” season may be lending some support to prices this morning, a weaker Dollar coming out of the holiday weekend and an improved overall macro economic outlook may be the main focal point of this morning’s gasoline trade. On the other hand, it may take several weeks to see if US drivers are going to respond to the May pullback in retail prices with improved demand. The Commitments of Traders Futures and Options report as of May 24th for Gasoline (RBOB) showed Non-Commercial traders were net long 49,288 contracts, a decrease of 3,515 contracts. The Commercial traders were net short 53,172 contracts, a decrease of 4,946 contracts. The Non-reportable traders were net long 3,885 contracts, a decrease of 1,430 contracts. Non-Commercial and Non-reportable combined traders held a net long position of 53,173 contracts. This represents a decrease of 4,945 contracts in the net long position held by these traders. With the highest level in July RBOB since May 12th seen overnight it is possible that the market is seeing some technically related buying interest, especially if a down trend channel line from a series of May highs is taken out.

HEATING OIL: The heating oil market has also found benefit from a weaker Dollar this morning and was able to reach the highest prices levels since May 5th. A pipeline closure out of Alberta has added to the recent transportation issues on the Mississippi river and in general that has kept some concern of tight US product supplies in the headlines. With heating oil stocks already at very low levels, the talk of improved demand and lingering supply chain problems in the US would seem to give the bull camp an internal and external edge. The Commitments of Traders Futures and Options report as of May 24th for Heating Oil showed Non-Commercial traders were net long 19,190 contracts, a decrease of 795 contracts. The Commercial traders were net short 30,568 contracts, a decrease of 2,411 contracts. The Non-reportable traders were net long 11,378 contracts, a decrease of 1,616 contracts. Non-Commercial and Non-reportable combined traders held a net long position of 30,568 contracts. This represents a decrease of 2,411 contracts in the net long position held by these traders. Perhaps the July heating oil contract is poised to return to the 50 day moving average, which today is pegged up at $3.1020.

TODAY’S ENERGY MARKET GUIDANCE: The bulls have the edge from both internal and external developments. With the energy complex fresh off a sustained May correction on its charts, an improvement in macro economic views and a weaker Dollar could give rise to some rather impressive short covering buying. In fact, if there is an improved demand track that could in turn result in a series of noted gains in energy prices into the US Friday payroll readings.

Commodity Outlook – 2011.05.20

by Dave Hightower on May 23, 2011

Below is an excerpt from The Hightower Report’s most recent Newsletter. To receive access to this story, with trade strategies, and our daily coverage of 16 markets, visit futures-research.com for your free 2 week trial!

Going into the end of May, the outlook for many physical commodities was still mostly bearish. However, as recently as May 1 the overall market environment was still nearly a perfect storm for commodities, with positive growth expectations, noted inflationary pressures, and a weaker US Dollar. And there was only a passing concern for the approaching end to the easy money era. On the other hand, with a series of brokerage firms and fund managers predicting a top in certain commodity markets, the Dollar rebounding, and the pace of the US economy faltering, it didn’t take long for severely overbought markets like crude oil, silver, RBOB, copper and cattle to come under aggressive stop loss selling pressures. In looking at a composite non-commercial/nonreportable spec positioning of non-financial commodities, it is evident that the May washout was severe (see chart).

With the copper futures market as of May 10th seeing its non-commercial and nonreportable positioning drifting toward a mostly liquidated status and the US Treasury Bond market seeing its long-held spec short position virtually eliminated, it was clear that some commodity markets had already moved to price-in a large portion of the slowing expectations. In the silver market, where the May 10th COT report showed a non-commercial and nonreportable positioning of only 48,000 contracts and the market subsequently falling an additional $6.18 per ounce, it is possible that a large portion of the weak-handed longs moved to sidelines more quickly than the mainstream press had been expecting. In our opinion, a spec and fund net long of less than 30,000 contracts in silver futures would be a very surprising development, as the threat of severe financial uncertainty and the need for flight to quality instruments has hardly been eliminated.

The hog market is another example of the extreme liquidation of the long interest from the marketplace, as the non-commercial and nonreportable combined spec position fell from a net long 49,731 contracts as recently as April 13 to only 16,055 contracts by May 10. Clearly many markets were overdone and the macroeconomic case had deteriorated, but traders need to be careful assuming a pattern of sustained losses in markets that have retained their bullish fundamental structure.

While by May 1st the energy market was clearly overbought both technically and fundamentally, we maintain that energy prices did not make their climb above the $115 per barrel mark because of the “evil speculator” or because of patently phony fundamentals. In fact, for most of 2011 US WTI crude oil has been consistently priced below Brent crude oil prices. At times Brent crude oil prices were trading at close to $20 per barrel premium to WTI because the world in general was willing to pay more for crude supplies than were US customers and the US was holding a large measure of the world’s excess supply. Therefore, it was no surprise that Brent crude oil’s premium over WTI topped out at a level that could have justified the re-exporting crude from inside the US to the London market. Going forward, we think the remainder of 2011 will see the energy complex begin to take more and more of its direction from the product markets, as relatively low gasoline stocks in the US, Russia and Europe look to put the market on a path to extremely high gasoline and diesel prices later this summer. As the charts show, US and European product stocks are tight and, most importantly, US refinery operating rates have remained low. The supply build into the summer demand window looks to be less than normal or perhaps simply later than normal this year.

In a classic example of government action making the situation worse, we suspect that the US refinery operating rate will get even lower due to recent threats from the US government to investigate the refinery industry. What Washington and the talking-head press fail to realize is that the US refinery setup is flawed to begin with, but it is the only way we have to get product supply to the market. US officials don’t like high gasoline prices, and they think that hammering the refiners with market manipulation charges and investigations will solve the problem. But instead, refiners are likely to take the stance that buying crude and making it into products has to be done under even greater profit margins now because they might be forced to sell their finished goods at narrower margins in the future. Clearly the politicos can claim they dampened energy prices for the consumer, but over the coming months refinery activity is likely to drop to even lower levels due their interference, and the potential for a summer driven energy rally could rise significantly.

Another thing that might prompt a return to bull market status for commodities is the potential for sharp gains in grain prices, which in turn would magnify the inflationary vibe in the marketplace. With the grain markets needing a large jump in overall acreage in 2011 and the weather seriously countervailing that effort, one has to expect a further tightening of ending stocks in corn, perhaps soybeans and maybe even wheat. A serious run-up in corn could support many other physical commodity markets. Traders need to keep a watchful eye on corn and energy over the next six weeks.

EIA Calling for Expanded Crude Production; Planting Concerns

by Dave Hightower on May 20, 2011

Generally positive tone across many of the physical commodity markets. Energies, after significant setbacks off their April/May highs, have shown some recovery capacity. EIA has called for increase in crude oil production to head-off an economic slowdown. Low gasoline other product stocks, both US and around the world, are still a concern. Corn planting window is passing by with more adverse weather being forecast.

Concerns for Corn Crop Persist. Surprise Draw on Gas Stocks

by Dave Hightower on May 18, 2011

Generally positive tone on most commodity markets to start the day.

Energy: In the Process of Recovering From Recent Rout

by Dave Hightower on May 17, 2011

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.

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