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.
Friday, February 23, 2007
Monday, February 5, 2007
Announcement
Owing to certain matters that require my immediate attention, I will not write Crude Oil Market Analysis for approximately one week. I will resume writing as soon as possible.
Dr. Chen
Dr. Chen
Saturday, February 3, 2007
Crude Oil Market Analysis (2/2/07)
Today’s market action is no surprise given yesterday’s COMA forecast that “the market needs to stay above $57.00 to maintain its bullish momentum toward $59.00 to test the psychologically significant, though not technically significant, level at $60.00.”
The market opened below $58.00 at $57.93 and then tested the support at $57.00 again but held at $57.05 at 10:30 a.m. From that point on, the market kept its bullish trend and broke yesterday’s high at $58.86 to close $1.72 higher at $59.02.
One bullish news is that Nigeria’s oil workers may start strike as early as next Monday. Another bullish news is that President Chavez threatens to nationalize four oil projects with the combined production of 600,000 barrels per day, even though the news was known yesterday when the market dropped by 83 cents.
It seems that the bears were skinned this week.
The CFTC’s COT report shows that for the week ending on Jan. 30, 2007, a day the market had the most increase of $2.92 since Sept. 15, 2006, the net short interest increased from 8,499 contracts to 14,342 contracts amidst an increase of 37,398 contracts in open interest. In other words, in a week when the market had a $1.95 increase, the shorts were coming in to sell the rally. This explains why today the market shot up by as much as $1.60 to $59.10 after failing to break support at $57.00.
Fundamentally, COMA reiterates its forecast on Jan. 31 that “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.” However, the market sentiment has changed since Jan. 31, as evidenced by the fact that the March contract increased by $1.72 while the Dec. 2008 contract increased by $1.90, indicating that the market has begun to place some premium on the geopolitical risk in the supply of oil. In contrast, on Jan. 23 when the market rallied $2.46, the most since Sept. 19, 2005 up until that time, in the wake of Secretary Bodman's announcement of the doubling of the SPR in 20 years, although the March 2007 contract rallied by $2.46, the contract for December 2012, when the U.S. still needs to fill its SPR, rose only a nominal $0.89.
Technically, the very fact that the market closed above $59.00 indicates that the test and break of the psychologically significant, though not technically significant, $60.00 is imminent.
Strategy: Sit tight.
Dr. Chen
The market opened below $58.00 at $57.93 and then tested the support at $57.00 again but held at $57.05 at 10:30 a.m. From that point on, the market kept its bullish trend and broke yesterday’s high at $58.86 to close $1.72 higher at $59.02.
One bullish news is that Nigeria’s oil workers may start strike as early as next Monday. Another bullish news is that President Chavez threatens to nationalize four oil projects with the combined production of 600,000 barrels per day, even though the news was known yesterday when the market dropped by 83 cents.
It seems that the bears were skinned this week.
The CFTC’s COT report shows that for the week ending on Jan. 30, 2007, a day the market had the most increase of $2.92 since Sept. 15, 2006, the net short interest increased from 8,499 contracts to 14,342 contracts amidst an increase of 37,398 contracts in open interest. In other words, in a week when the market had a $1.95 increase, the shorts were coming in to sell the rally. This explains why today the market shot up by as much as $1.60 to $59.10 after failing to break support at $57.00.
Fundamentally, COMA reiterates its forecast on Jan. 31 that “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.” However, the market sentiment has changed since Jan. 31, as evidenced by the fact that the March contract increased by $1.72 while the Dec. 2008 contract increased by $1.90, indicating that the market has begun to place some premium on the geopolitical risk in the supply of oil. In contrast, on Jan. 23 when the market rallied $2.46, the most since Sept. 19, 2005 up until that time, in the wake of Secretary Bodman's announcement of the doubling of the SPR in 20 years, although the March 2007 contract rallied by $2.46, the contract for December 2012, when the U.S. still needs to fill its SPR, rose only a nominal $0.89.
Technically, the very fact that the market closed above $59.00 indicates that the test and break of the psychologically significant, though not technically significant, $60.00 is imminent.
Strategy: Sit tight.
Dr. Chen
Thursday, February 1, 2007
Crude Oil Market Analysis (2/1/07)
Today’ market action followed yesterday’s forecast when COMA forecast that “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,” but that “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.”
The market opened in pit trading almost unchanged at $58.17 and then fell to a low of $57.10 in the wake of smaller than expected natural gas draw last week. But once the market held at $57.10 above the support of $57.00, it was taken higher by the overall bullish sentiment to a high of $58.86. Once the market failed to break $59.00 toward $60.00, there the fundamentals of the market finally set in, especially given the fresh news of the bearish natural gas inventory. The market encountered a bout of profit-taking and fell more than $1.00 in the last half an hour of trading to close $0.84 lower at $57.30.
Not surprisingly, as COMA indicated on Jan. 31, since the fundamentals of the supply and demand give the market no direction, a market that trades purely on technical indicators is directionless.
In addition to the bearish natural gas inventory, another bearish news might be that Iran announced today that it produced 4.04 million barrels of oil per day in Jan., 300,000 barrels per day above its OPEC quota.
Fundamentally, COMA reiterates its forecast yesterday that “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 needs to stay above $57.00 to maintain its bullish momentum toward $59.00 to test the psychologically significant, though not technically significant, level at $60.00.
Tomorrow if the market holds above $57.10, it will trade inside today’s range, as both the bulls and the bears will take a respite after four days of intense battle in which the bulls had the northern wind behind them and forced out many of the shorts who sold the rally last week.
Strategy: Sit tight.
Dr. Chen
The market opened in pit trading almost unchanged at $58.17 and then fell to a low of $57.10 in the wake of smaller than expected natural gas draw last week. But once the market held at $57.10 above the support of $57.00, it was taken higher by the overall bullish sentiment to a high of $58.86. Once the market failed to break $59.00 toward $60.00, there the fundamentals of the market finally set in, especially given the fresh news of the bearish natural gas inventory. The market encountered a bout of profit-taking and fell more than $1.00 in the last half an hour of trading to close $0.84 lower at $57.30.
Not surprisingly, as COMA indicated on Jan. 31, since the fundamentals of the supply and demand give the market no direction, a market that trades purely on technical indicators is directionless.
In addition to the bearish natural gas inventory, another bearish news might be that Iran announced today that it produced 4.04 million barrels of oil per day in Jan., 300,000 barrels per day above its OPEC quota.
Fundamentally, COMA reiterates its forecast yesterday that “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 needs to stay above $57.00 to maintain its bullish momentum toward $59.00 to test the psychologically significant, though not technically significant, level at $60.00.
Tomorrow if the market holds above $57.10, it will trade inside today’s range, as both the bulls and the bears will take a respite after four days of intense battle in which the bulls had the northern wind behind them and forced out many of the shorts who sold the rally last week.
Strategy: Sit tight.
Dr. Chen
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