Crude Oil Market Analysis

Agreed and likewise. Still waiting for that key resistance area!...but I don understand you have other matters requiring your attention at this time.

 

Dr. Chen,

Did you slip quietly out the back door, never to return?

AZD

 

AZD,

Thank you for your continued interest in Crude Oil Market Analysis at a time when I have been attending matters that require my immediate and concentrated attention.

If time permits, I will write the Crude Oil Market Analysis over the weekend.

Again, thank for your interest in COMA. COMA will return soon.

Dr. Chen

 

Crude Oil Market Analysis (2/23/07)

Today no major news provided the market with a clear direction, so the market continued its trend and ended up by $0.19 to close at $61.14.

The market opened $0.30 higher at $61.25 and went up to break the resistance at $61.37-$61.62 to a high of $61.80 in the wake of the news of the shutdown of Teppco’s 240,000 barrels per day pipeline from the Gulf Coast to New York. But when the news broke out that the pipeline will resume operation this weekend, the market fell back to below Wednesday’s high of $60.63 to $60.50. Once the market held above $60.50, it gradually moved back up to close $0.19 higher at $61.14.

Fundamentally, the supply and demand of the market is balanced, as the petroleum stocks are sufficient to meet the demand for the remainder of the winter.

Obviously the crude oil stock is sufficient and should be bearish to crude price, but the flare-up of the Iranian nuclear issue in the wake of the IAEA’s report on Feb. 22 and the ensuing U.N. Security Council meeting on Feb. 26 will add a risk premium and provide a support for crude price.

Although the distillate stock showed a draw of 5.0 million barrels last week due to the cold weather, the draw is likely a delayed response to the cold weather in the past two weeks, as distillate stock showed only a draw of 3.1 million barrels the week before last week. The weather forecast calls for normal temperature in the U.S. Northeast for the remainder of Feb. and above-normal temperature in March. The moderation of the cold temperature will reverse the pattern of the very large draw of more than 4.7 million barrels per day in each of the last two weeks.

The draw of 3.0 million barrels of gasoline stock is mainly due to the drop of the refinery turnaround to 85.2%. However, the refinery turnaround will likely recover significantly next week, as the “crack spread” is $14.41, the highest since last August, based on today’s closing futures prices and will provide incentives to refineries to accelerate their maintenance.

Technically, the market looks bullish. The CFTC’s COT report shows that in the week when the market dropped from $59.85 to $58.85, the market went from a net short of 7,213 contracts to a net long of 7,862 contracts amidst a sharp decrease in open interest by 95,307 contracts, indicating that the market had perceived a bottom at $57.00 amidst short-covering. The fact that the market closed above $61.00 only two days after it first closed above $60.00 at $60.07 may also draw fresh longs to the market.

Strategy: Sit tight.

Dr. Chen

P.S. COMA will not necessarily be updated daily due to the time constraint of its author.

 

Nice to have you back dr. chen!

 

great analysis, Dr. Chen

Nice to have you back, hope everything is well.

 

Ditto.

AZD

 

Agreed.

 

oil will be limit down.

speculative excessess will get unwound.

 

Crude Oil Market Analysis (4/10/07)

Today’s market was uneventful. The market held above yesterday’s low at $61.35 and slowly drifted upwards but could not break $62.30, the lows of March 26 and March 27 just before the market spiked to $68.09, and traded in a $0.93 range before settling $0.38 higher at $61.89.

Yesterday the market sold off by $2.77 despite the close of the European market. The $2.77 drop eclipsed the $2.75 drop on Jan. 3 and became the biggest one-day sell-off in dollar amount since Aug. 2005. Although analysts have attributed the sell-off to the delayed reaction to the release of British servicemen (including one woman) and the rollover of the Goldman Sacks Commodity Index, COMA would attribute the sell-off mostly to the unique situation in Cushing, Oklahoma where the storage facilities for West Texas Crude are about to reach their capacities, because the “delayed reaction” theory does not explain the high premium Brent Crude has over West Texas Crude--$5.53 as of today. Adding to the frenzied sell-off was long liquidation after a week in which the net longs increased by 26,496 contracts to a total of 66,675 contracts amidst an increase of 27,574 contracts in open interest when the market rose by $1.71.

Fundamentally, Iran’s continued defiance on the U.N.’s demand for its compliance of its nuclear program by announcing that it is aiming to install 50,000 centrifuges to enrich uranium and the ongoing unscheduled maintenance of many refineries, including BP’s 410,000 barrels per day refinery in Whiting, Indiana, Exxon Mobile’s 563,000 barrels per day refinery in Baytown, Texas, and Valero’s 158,000 barrels per day refinery in recovery from fire, all add support to the crude oil market. In addition, as the EIA pointed out today in its monthly Short Term Energy Outlook, the prospective limited gasoline supply this summer from importers due to their supplying other countries such as Iran, Nigeria, and Venezuela will also support the product market.

Technically, the market faces weak support at $61.35 and then a major support at $60.13. Resistance is at $63.75-$64.00.

In tomorrow’s DOE report the refinery input is likely to increase slightly to about 15.0 million barrels per day while the import drops below 10.0 million barrels per day, leaving a modest inventory build of 0.5-1.8 million barrels.

Gasoline production will recover to below 9.0 million barrels per day, as the crack spread has reached $23.54 today, the highest since Sept. 28, 2005. Import will likely increase to 1.1 million barrels per day while demand drops to $9.4 million barrels per day, leaving a draw of 1.5 million barrels, in line with the Wall Street forecast of a draw of 1.2-1.5 million barrels.

Distillate production will remain flat at 4.1 million barrels per day while import drops to just above 300,000 barrels per day. The demand will increase to just below 4.4 million barrels per day given the record low temperature last week, resulting an inventory draw of 2.8 million barrels, much larger than the Wall Street forecast of a draw of 900,000 barrels.

Overall, tomorrow’s DOE report should be supportive, and the market risk remains on the upside.

Strategy: Buy at $60.35 with a stop at $59.30.

Dr. Chen