Today is a déjà vu all over again.
On Jan. 24 Crude Oil Market Analysis stated, “the U.S. oil industry agrees with Crude Oil Market Analysis, but the market does not. As a result, COMA made the right forecast of the fundamentals but still lost money.” The same summary applies to COMA today.
The reported refinery input is 14.8 million barrels per day, slightly above COMA forecast of 14.7 million barrels per day. The reported import is 10.0 million barrels per day, in line with COMA forecast of a recovery in import. The resulting crude build of 2.7 million barrels is closer to COMA forecast of a build of 2.0 million barrels than the Wall Street forecast of a build of 1.2-1.5 million barrels.
The reported gasoline production is 9.1 million barrels per day, slightly above COMA forecast of 9.0 million barrels per day. The reported demand is 9.1 million barrels per day, slightly above COMA forecast of 9.0 million barrels per day. The reported import is 1.3 million barrels per day, above COMA forecast of an increase from 911,000 barrels per day to 1.1 million barrels per day. The gasoline build of 3.8 million barrels is closer to COMA forecast of a build of 2.0 million barrels than the Wall Street forecast of a build of 1.4-1.6 million barrels even though COMA underestimated the import level.
The reported distillate production is 4.0 million barrels per day, slightly above COMA forecast of 3.9 million barrels per day. The reported demand is 4.5 million barrels per day, above COMA forecast of 4.3 million barrels per day. The reported import is 364,000 barrels per day, lower than COMA forecast of over 450,000 barrels per day. The distillate draw of 2.6 million barrels is slightly above COMA forecast of a draw of 2.4 million barrels.
The market opened fairly uneventfully at $56.40. After the DOE report the market traded erratically between $55.75 and $57.80. In the last half an hour, perhaps due to the FOMC announcement, the market decided to break $58.00 to reach a high of $58.20 before closing six cents lower at $58.14. The two-day rally of $4.13 is the biggest two-day rally since Dec. 14 and Dec. 15 of 2004 when the market rallied by $3.18, but at a mathematically lower percentage.
One bullish news today is that the U.S. economy grew at a 3.5% annual rate in the last quarter of 2006 after growing at a 2.0% annual rate in the prior quarter. Another bullish news that may have caused the market to finally break above $58.00 in the last half hour of trading is the FOMC announcement that sees a “somewhat firmer economic growth” and inflation pressures that “seem likely to moderate over time,” implying an ideal goldilock economy in the offing.
Fundamentally, the market’s supply and demand appear to be balanced, as the persistent cold weather will continue to draw down distillate inventory at a high rate, and the ample supply of petroleum stocks will meet the demand for the remainder of the winter in the absence of supply disruption.
Technically, the market looks very bullish, as the market did not trade around the $57.00-$57.40 resistance but rapidly traded through the resistance to close above $58.00.
Result of prior trade: Short at $57.20 established today was stopped out at $58.20 for a $1.00 loss.
Strategy: Sit tight.
Dr. Chen
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Hi Dr Chen,
Can you please elaborate on the FOMC and DOE announcements? What they are and the signifance they play in crude oil prices.
many thanks for your daily reports!
Thanks,
OD.
dude how you not know what FOMC announcements are!?
It has been explained in a few words, the rest is homework.
In a nutshell: Demand for fuel will rise as the U.S. economy appears in better shape than previously thought
For the convenience of my readers, the following two paragraphs are part of the FOMC announcement.
“Recent indicators have suggested somewhat firmer economic growth, and some tentative signs of stabilization have appeared in the housing market. Overall, the economy seems likely to expand at a moderate pace over coming quarters.”
“Readings on core inflation have improved modestly in recent months, and inflation pressures seem likely to moderate over time. However, the high level of resource utilization has the potential to sustain inflation pressures.”
A solid economy tends to boost demand for the consumption of crude oil and thus supports the price.
The part of the DOE report that is most relevant to the energy market action is already cited in the Crude Oil Market Analysis (1/31/07).
Dr. Chen
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