Energy Market Updates

For the second day in a row, early session losses were erased with strong closes. Todays bullish action came on the heals of a surprise increase in jobless claims and some cautiously upbeat comments the Federal Reserve. Commenting on the role of the Fed, Bernanke said ultra low rates would remain in effect through 2014 and did not rule out additional measures to pump up the economic situation. Commodities are the collateral damage of such news as the dollar again took a hit and caused the pits to show strong gains as the day wore on. Crude settled at $104.55 up .43, RBOB added .0276 to close at $3.1833 and HO took the lead gaining .0333 to $3.1944. Heat has come back with vengeance after touching 3.09 on the prompt month just over a week ago. There is fair amount of commentary out there that we should see substantially lower numbers in the coming sessions. Support for HO looks to be at the 3.15, then a 3.05 level.

Gasoline futures continued to sell off today after starting the early morning in the green. RBOB was up as much as 2 cents prior to the opening bell on news of Spain having a successful bond sell off to avoid yet another European debt scare. That bullishness turned however as Germany was said to be at odds with other Nations on how to proceed with the European Zone bailout plan. Simultaneously, Moodys was said to be ready to announce a downgrade of France's debt rating that caused the US dollar to push higher. A higher Dollar generally has a negative affect ( or positive affect from some viewpoints) on Commodities. Crude looks to be poised to fall below $100 for some time, getting as low as $101.67 before closing at $102.27, down .40. NatGas inventories were in line with estimates and on a whole remain roughly 700 bcf higher than the 5 year average. Even with the sessions slight bump in HO, finishing up .0069 to $3.1251, we are still roughly .15 less than two weeks ago. RBOB continues to be the dog falling another .0486(almost .25 in two weeks) to $3.1541. While it is nice to see the prices fall, realistically most think another .25 needs to be pulled off to get back to a "normal" state.

You hear us talk about it all the time. Expectations. What do a certain group of people expect to happen or be reported versus what is in fact reality. In a world economy that has taken one hit after another, when "reality" exceeds expectations, it is cause for celebration. In our case, speculation. Todays wild reversal was primarily due to the Purchasing Managers Index, PMI. This benchmark is used by many economist to gauge growth and or contraction. And just like any report, pundits put their spin on what is to be expected. Today showed that the US economy grew at a more robust rate in March than was to be expected, and at a higher rate than February. This caused many who got out of positions last week, to load the back up this today. Even more wild was that the markets were down over .02 early in the session. By the time the closing bell rang, a weeks worth of losses were wiped away with RBOB surging .0741 to $3.3822, HEAT adding .0795 to $3.296 and Crude tacking on $2.21 to $105.23. With a short week on tap due to Good Friday and another set of Job data due out Wednesday, investors were not willing to let the buying opportunity pass. Again, the overall theory being that a growing economy can continue to support higher fuel prices. I tend to believe history on this topic rather than investors.

With the Heating oil pit tacking on over 15 cents in just under a week, many are scratching their heads as to why.  In a winter that has seen more 50 degree days than teens, most would assume the Heat pits to be tanking.  As with the case with these types of patterns, shifts in the jet stream have caused the Northeast to have a mild winter yet Europe is caught in a bitterly cold spell for some time.  Brent Crude has maintained its $20 premium to its cousin WTI, thus explaining the HO to WTI disconnect.  As shown below, that disconnect has been in place most of the year.   Longer term, you may start to see more US vessels head to European markets, signaling some shortfalls down the road.  Many are still on edge as Greece is continuing to try and find a way to pay off creditors and with Iran and Israel in a stare down, the tightening supplies across the pond are having nothing but bullish affects on the trade.  At the close, Crude added $1.50 to $98.41, RBOB slipped .0004 to $2.9275 and HO gained another .0343 to $3.1909.  Again we have touched the top of the 18 month range for HO, then next 30 days have typically seen a healthy pull back.  But again, what is typical anymore?

Late yesterday we saw the overnight pits shoot higher once news surfaced that the FED was of the position to keep fund rate very low through the foreseeable future.  Citing continued slow economic growth, a European debt crisis, (that I recently read to be compare to "a pimple on a teenage boy") and a persistent unemployment rate that is still around 8.5%, the FED is still considering another round of quantitative easing later this winter.  Commodities have responded positively as the greenback fell to a six week low early this morning.  Still positive signs of an improving economy are are out there as durable good orders for December showed a 3% increase which unfortunately has a bullish effective on Futures.  The range for Heat has not broke and we continue to see sideways action as shown in the chart below.  At the end of the day, Crude added .30 to $99.70, RBOB gained .0128 to $2.8466 and HEAT jumped .0343 to $3.0535.

Fears of yet another Greece loan default were on the minds of many investors today as futures showed moderate losses as the dollar strengthened.  Greece is hoping that banks will forgive roughly $130 billion in debt due in the next few months.  If only my bank would forgive half of my mortgage, I would be a happy man!  Positive news from the housing industry was reported as existing home sales increased 5% in December.  The market couldn't rally enough today and with gasoline demand falling over 6% in a month on month comparison, the threat of demand destruction in a slightly improving economy is a real concern.  It is hard to believe that we have seen six down days in the last seven sessions in the Heat pit.  We have peeled off almost 10 cents during that time frame.  This following our prediction that once we touch 3.10ish we should pull back.  As this has been the pattern for the year.  Looming over the weekend is a European vote on accepting Iranian oil, as reports of US ships moving out of the region.  As a quick snow event moves through the region this weekend, lets all remember to keep those fills clear and accessible.  Crude fell $1.93 to $98.46, RBOB lost .0310 and HEAT lost .0476 to $2.9884.

Early morning news of Hess shutting down its St. Croix facility from producing gas to strictly an oil storage facility sent RBOB futures higher some seven cents before the opening bell even rang.  Fear of tightening eastcoast gasoline supplies could not have hit at a worst time as ongoing tensions with Iran have again made headlines.  Iran appears to have got the eye, or wallet, the Saudis as they have gestured they are unwilling to pick up additional pumping left by removing Iranian barrels from the market place.  Realistically, this means that the Kingdom is comfortable with Crude above $100.  The trade seemed to cool off as the day moved on with large builds expected across all products in the delayed DOE report.  Additionally, looming concerns over the long term demand continue to be a bearish influence on any price breakouts beyond our current range.  At the Close, Crude fell 12 cents to finish at $100.59, RBOB surged .0541 to $2.8254 and Heat fell .0238 to $3.0134.

Overnight action saw pits slightly higher as the market weighed the continued threat of Nigerian oil workers to join the General Strike that has paralyzed the Nation for the last several days.  Prior to the release of inventories, which many were still digesting the much less bearish EIA numbers from Tuesday night, the housing market got a boost with a report showing applications for homes were up 4.5% this period.  A bullish indicator for the economy in general. This kept the market trading on both sides of 0.00 much of the morning.  With the large builds across the board on the DOE report, the initial sell off fizzled away as the day wore on.  Again, only to late session heroics, as in the last 15 minutes pushed HO down .0368 to 3.0646, RBOB slipped .0095 to 2.7633 and Crude fell 1.37 to $100.87.  Adding to my notes yesterday, many commented on the disbelief of how range bound the Heat pit has been this year.  Below is an eight month snap shot and shows the caterpillar like chart.  A solidly defined range of 2.70 to 3.15.  Currently sitting at 3.06, lets hope that this pattern continues.