Energy Market Updates

The difference in todays action than yesterdays was that RBOB and HEAT actually followed Crude in finishing lower. With NatGas inventories showing a slightly smaller injection than expected, prices were held in check for most of the morning until turning sharply negative by early afternoon. The only other major item of note was that the Jobs data released showed that the labor market is improving, but at a slower rate than anticipated. Just as is the case with everything in this business, how well we perform against expectations (whosever they may be) is used as the instrument of judgment and market direction. The lack of news hitting the wires kept the pits lower without any reason to make a run. As mentioned, we will probably be held within this 2.09 to 2.16 range until some defining news pushes us one way or another. The downside bias still exists, even with OPEC appearing to thin exports. At the Close, Crude dropped $1.25 to $74.40, showing a slight disconnect between the products. RBOB lost .0153 to $2.1951 and HEAT fell .0272 to $2.1319.

With the weekly inventory report came a mixed bag and subsequently a mixed close. As shown below, the largest variance was seen in gasolines which was the only thing that kept the trade positive today. Crude suffered losses finishing down 72 cents to $75.65, while products closed higher. RBOB added .0152 to $2.2101 and HEAT gained .0190 to $2.1591, further widening refining cracks. As we speak, Crude has fallen another 30 cents in aftermarket trading. Many are looking at demand, which has seen gasoline demand rise 10% over the same period last year and distillates rise almost 8% month on month. This after the EIA cut their demand outlook! How much of this is due to a strengthening economy remains to be seen. My sense is that demand, like IQ, wasn’t starting from a very high place so any increase is huge. Long and short, it looks as though we will be range bound for several sessions as investors keep a hairy eyeball on Europe and the DOW to evaluate how the financial crisis reverberates through the continent.

As the morning began, we looked to head towards a session that was going to continue the downward slide after a brief bounce on Monday. That all changed as the opening bell rang and what was a negative market turned positive. HEAT bounced off the 50% retracement level and never looked back. With news relatively mild today as the country braces towards Wednesdays DOE report, all expectations are for the products to build by 1 mbl. The rig disaster in the gulf should not have a major effect on supply, yet should inventories come in lower than expected; it will be pointed to as the primary cause. HEAT appears to be range bound for the time being as last weeks big fall as many heads still spinning. It’s natural to see some buy back. As little as we want to put stock in the charts, as shown below, that 2.05 level held and the 2.10 level held today. But, “turn it upside down and it will say the same thing”. We could see a short term range defined with the inventory report on Wednesday. At the Close, Crude fell .43 to $76.37, RBOB added .0226 to $2.1952 and HEAT rose .0199 to $2.1401.

After yesterdays amazing post close circus, today started out rather mild. For those of you who didn’t hear, a fat finger mistake by a former Citi trader… (as of 3:05pm yesterday he is a former employee) who put a trade in for several billion rather than million shares, sent the market into near collapse in minutes. Heat went from -.0705 to -.1250 in about 4 minutes. As things resolved themselves and world indices came back to reality, some of the fear carried over into todays session. The mere conjecture that $40 stocks can go to $0 in minutes had some traders getting out of Dodge and booking profits. While the panic does not suggest that markets can collapse instantly, it does point to the fact that there are a lot of stop limits out there in all markets which suggest a continued overbought mentality. With the jobless report showing employers adding jobs but the jobless rate grew to 9.9% (don’t ask, I’m just as confused) that held prices down for the remainder of the day. Heat still was able to bounce off the 61% retracement as it did during the panic sell off yesterday, so that 2.05 area looks tough to break. With the daily chart the last few weeks looking much like my recent EKG, its impossible to tell where we are headed in the near term. What we can say is that this was a much needed correction and a fourth down day should confirm a new trend. At the close, Crude fell $2.00 to $75.11, RBOB lost .0312 to $2.1251 and HEAT slipped .0342 to $2.0795

While I thought we were in for a correction, I wouldn’t have thought in a million years that we would see 20 cents in gas and 15 cents in HEAT get wiped away in two sessions. Playing in on the days action was the continued fear that the European Union is in a whole bunch of trouble with the Greece bailout plan. Not only that, but Spain and Portugal appear to be next in line. That pushed the dollar higher and the selling tsunami hit at the opening bell as the shift from optimism to fear hit investors in their jugular, their wallet. On the Inventory front, while bearish, for the most part were in line with expectations. Crude stocks grew by 2.75mbl vs estimates of +1.0. Gasolines added 1.25mbl vs estimates of 1.0 and Distillates posted increases of 575k barrels, much less than the 2.0mbl expected. The issue in the Gulf, may not rear its head for a few weeks on the inventory front. Be weary though, looking at the chart below, we can see the pattern of two weeks ago where we anticipated a continued correction before jumping 15 cents in two weeks, noting HEAT stopped dead in its tracks hitting the 38% retracement level and actually put the rally hat on mid day and was only down about 3 cents before slipping into the close finishing -.0750 to $2.1845. RBOB tumbled again falling .1018 to $2.2204 and Crude lost $2.77 finishing below $80 to $79.97. Look for a third down day to confirm a prolonged trend reversal.

As news of the leak in the gulf continues to make headlines, Oil markets continued their four day run of solid gains. With construction spending up for in Q1 for the first time in several quarters, many investors can not hold back the urge to jump on the bandwagon. Greece accepted a $148 billion dollar bailout over the weekend dampening fears of their economic situation spreading and airlines are merging, investors may be grasping at indicators to justify their positions. The DOW showed another impressive day, up over 100 points currently. My bearish thoughts suggest that we are up for a reversal, but with only 2 down days in the last 10 days, I have been proven wrong for the last several sessions. But I am sticking with the bound to win theory. With the large spreads between front month and outer months, much of the recent rises can be pinpointed to the spread buyers. At the end of the day, Crude rose .04 to $86.19, RBOB gained .0357 to $2.4351 and HEAT jumped .0294 to $2.3451.

It appears that the last four sessions have completely erased the pessimistic view, or fear of the Sachs case that saw HEAT correct almost 10 cents in two days. We have now come all the way back to where we were on Thursday of last week. The quick correction had Bears beating their drums that $2 heat was on the horizon, and admittedly so, I was listening. The ability for the market to gain back what was lost on :

1. Very weak fundamentals (lots of supply…low demand)

2. Thousands of flights in Europe grounded (more demand loss)

3. Goldman Sachs investigation (more guys to fall)

Has to have one thinking …. “this thing has a mind of it’s own”. It does. The notion that we are on an economic upswing has participants rolling the dice that the US economy still has room to improve. At the close, Crude added $1.37 to $85.08, RBOB jumped higher in the last 30 minutes of the session adding .0529 to $2.3531 and HEAT gained .0355 to $2.2505. It’s like déjà vu all over again as we head into another weekend searching for direction and reason.

In what was a slow news day had the futures market bouncing between positive and negative territory for much of the morning session. With durable good orders on the rise in March, some might put another feather in the hat of bulls. But the inability of the pits to stay above some key resistance areas, HEAT was unable to stay above $2.25 and Crude fell below $85, has to play into the minds of players that another correction can be in the cards. We have discussed a number of times over the last few weeks that the market is searching for direction and fundamentals do not support current price levels. With many personalities at the Atlantic Region Energy Expo the next few days, I wouldn’t expect any wild swings in the market. Furthermore, speaking with some retail operators over the last few days, gasoline demand appears to still limping along. At the end of the day, Crude slipped 92 cents to $84.02, RBOB fell .0122 to $2.3409 and HEAT dropped .0134 to $2.2371.

It was clear today that traders had no idea what they wanted from the session and were riding the emotional wave on any piece of news released.  The morning news was dominated that yet another build in supplies were expected therefore pushing values down.  As the bottom feeders were able to push the pits back into positive ground, wires reported that Greece will more than likely default on their loans.  That sent the entire complex south.  But the resiliency of RBOB and HEAT to maintain some value while Crude tumbled has, many scratching their heads. Crude tumbled $1.76 to $82.44 but HEAT lost only .0068 to $2.2303 and RBOB fell only .0141 to $2.3268.  Those types of drops on Crude typically produce a 4 or 5 cent drop in the products at these levels.  Goes to show that someone out there still wants to ride this wave higher and is willing to put their money where their mouth is.  As the Dow continues to get slammed right now, down over 100 points, look for some fear selling on Wednesday despite what inventory levels are.

DAILY HEATING CHART

What’s up is down, what’s white is black, cats sleeping with dogs.. Whats next? Big Papi hitting home runs! The market continues to perplex even the most astute observer. Today for instance, with Inventories showing large builds in distillates and Crude and modest draw in gasolines (again all in PADD2), one would have expected to see large drops across the board after yesterdays fear sale on Greece defaulting on loans. But no, instead it was snowing in Danvers in late April and Crude finished positive 78 cents closing at $83.22. RBOB added .0059 to $2.3327 and HEAT slipped marginally to $2.2290 losing .0013. Again the 1.9mbl build in Crude, 2.9mbl build in distillates and draw of 1.2mbl in gasolines were only a factor for about an hour when the market immediately sold off and the pits were down almost four cents. As the FED announced they were going to stay the course and keep short term rates close to 0%, investors took it as a buying opportunity and pushed all indexes positive. The rebound today has changed my tune slightly. I was screaming we were in for a correction, now it appears we may be in for some congestion before more defining news points us towards a long term trend.