Crude Awakenings

Do to the overwhelming workload that I have had with my company Aaron Trading and these commodity futures markets that just won’t quit I haven’t been able to post on this blog in a while. However, I hope to once again publish timely crude oil and energy commentary on this blog. Just not sure when that will be.

In the meantime, if you are looking for in-depth energy market analysis, as well as other major futures markets be sure to to drop by my other blog at http://www.aarontrade.com/commodity futurestrading.

I recently blogged about crude oil futures at that weblog.

Also, we broke out of a major symmetrical triangle continuation pattern today. It’s the big one on the weekly chart. Man I love this crude oil market, this bull looks like is about to run totally wild!!! Have fun oil bulls and happy trading.

Crude Oil Futures Trading

March crude oil futures closed unchanged on Thursday as it consolidates below the 50% retracement level of the November-January rally crossing at 63.10. The low-range close sets the stage for a steady to lower opening on Friday. Stochastics and the RSI remain bearish signaling that sideways to lower prices are possible near-term. If March extends this week’s decline, the 62% retracement level crossing at 61.66 is the next downside target. Closes above the 10-day moving average crossing at 65.38 would signal that a short-term low has been posted.

Heating Oil Futures Trading
March heating oil closed lower on Thursday as it extends Wednesday’s breakout below December’s low crossing at 167.00. The low-range close sets the stage for a steady to lower opening on Friday. Stochastics and the RSI remain bearish signaling that sideways to lower prices are possible near-term possible near-term. Closes below December’s low crossing at 167.00 would confirm a downside breakout of this winter’s trading range while opening the door for a possible test of the 75% retracement level of last summer’s rally crossing at 162.00 later this winter. Closes above the 10-day moving average crossing at 177.04 would signal that a short-term low has been posted.

Unleaded Gas Futures Trading
March unleaded gas closed lower on Thursday and below November’s low crossing at 152.09 as it extends this year’s decline. The low-range close sets the stage for a steady to lower opening on Friday. Stochastics and the RSI are oversold but remain bearish signaling that sideways to lower prices are possible near-term. If March extends this week’s decline, the 87% retracement level of last summer’s rally crossing at 145.11 is the next downside target. Closes above the 10-day moving average crossing at 168.34 would signal that a short-term low has been posted.

Natural Gas Futures Trading
March Henry natural gas closed lower on Thursday and below last May’s low crossing at 7.695 as it extends the decline off December’s high. The low-range close sets the stage for a steady to lower opening on Friday. Stochastics and the RSI are oversold but remain bearish signaling that sideways to lower prices are possible near-term. Closes below last May’s low crossing at 7.695 has opened the door for a possible test of last February’s low crossing at 6.95 later this month. Closes above the 20-day moving average crossing at 8.668 would signal that a bottom has been posted.

Crude Oil Futures

March crude oil was slightly higher due to light short covering overnight as it consolidates some of Thursday’s huge decline, which led to a close below the 20-day moving average crossing at 66.17. Stochastics and the RSI have turned bearish signaling that sideways to lower prices are possible near-term. If March extends this week’s decline, the 50% retracement level of the November-January rally crossing at 63.11 is the next downside target. Closes above the 10-day moving average crossing at 66.75 would signal that a short-term low has been posted.

Heating Oil Futures
March heating oil was slightly higher due to light short covering overnight as it consolidates some of Thursday’s decline but remains below the 20- day moving average crossing at 181.25. Stochastics and the RSI have turned bearish confirming that a double top with December’s high has been posted. If March extends this week’s decline, gap support crossing at 175.50 is the next downside target.

Unleaded Gas Futures
March unleaded gas was slightly higher due to light short covering overnight as it consolidates above the 62% retracement level of the November-January rally crossing at 166.38. Stochastics and the RSI are bearish signaling that sideways to lower prices are possible near-term. If March extends this week’s decline, the 75% retracement level crossing at 161.44 is the next downside target. Closes above the 10-day moving average crossing at 176.77 would signal that a short-term low has been posted.

Henry Hub Natural Gas Futures
March Henry Hub natural gas was slightly lower overnight as it extends Thursday’s decline. Stochastics and the RSI have turned bearish signaling that sideways to lower prices are possible near-term. If March extends this winter’s decline, last May’s low crossing at 7.83 is the next downside target. Closes above Wednesday’s high crossing at 9.820 are needed to confirm that a low has been posted.

NYMEX Crude Oil Futures
March crude oil closed higher on Thursday due to short covering but remains below the 10-day moving average crossing at 66.53. The mid-range close sets the stage for a steady opening on Friday. Stochastics and the RSI are bearish signaling that sideways to lower prices are possible near-term.

NYMEX Heating Oil
March heating oil closed lower on Wednesday but is trading above the 20-day moving average crossing at 179.79. The mid-range close sets the stage for a steady opening on Friday. Stochastics and the RSI are bearish signaling that a short-term top might be in or is near. Closes below the 20-day moving average crossing at 179.79 are needed to confirm that a short-term top has been posted. If March heating oil renews last week’s rally, fib resistance crossing at 192.24 is the next upside target.

NYMEX Unleaded Gasoline
March unleaded gas prices posted an inside day with a higher close on Thursday as it consolidated some of this week’s decline. Despite Thursday’s rebound, March remains below the 20-day moving average crossing at 178.86. The high-range close sets the stage for a steady to higher opening on Friday. Stochastics and the RSI remain bearish signaling that sideways to lower prices are possible near-term. If March extends this week’s decline, trendline support crossing near 165.60 is the next downside target. Closes above the 10-day moving average crossing at 180.57 would signal that a short-term low has been posted.

NYMEX Natural Gas Futures
Natural Gas tanked again today after the release of the EIA Gas Storage Report earlier this morning. The front month February contract traded at a low of 7.75 just after the release of the report, breaking $8 for the first time since the first of August. Warm weather in the Northeast US continues to be the story leaving stockpiles with a much smaller drop than is typical for the middle of the winter. According to the report, US natural gas stockpiles fell by 81 billion cubic feet last week. The decline left stocks at 2.494 trillion cubic feet, 22% above the 5 year average. For this same week last year, supplies dropped 213 billion cubic feet. With more mild weather expected and continued small hits on current supplies, we are expected to end the season with a substantial amount of gas in storage, in fact current projections would have us emerging from winter with stockpiles at their fullest since the government began tracking weekly inventories in 1994. The February NYMEX Natural Gas contract traded in New York closed at $8.229, down 0.231 for the session.

Natural Gas Overview
Natural gas spot prices continued to decrease this week at all market locations as unseasonably mild temperatures persist in most regions of the United States. For the week (Wednesday to Wednesday), the spot price at the Henry Hub declined 35 cents per MMBtu, or about 4 percent, to trade at $8.50 per MMBtu yesterday (January 25). The price of the NYMEX futures contract for February delivery at the Henry Hub also decreased this week. The contract closed yesterday at $8.460 per MMBtu which is 23 cents per MMBtu, or about 3 percent, less than last Wednesday’s price. Natural gas in storage as of Friday, January 20, decreased to 2,494 Bcf, which is 21.7 percent above the 5-year average. The spot price for West Texas Intermediate (WTI) crude oil dropped 16 cents per barrel since last Wednesday to trade yesterday at $65.60 per barrel or $11.31 per MMBtu.

Natural Gas Prices
Natural gas spot prices fluctuated slightly during this past week in response to short periods of colder weather and winter-weather forecasts, but overall maintained the decreasing trend that has continued since mid-December. All market locations recorded decreases since last Wednesday, January 18, ranging from 2 cents to 65 cents per MMBtu with no locations exceeding a decrease of more than 7 percent. The Henry Hub spot price traded yesterday (January 25) at $8.50 per MMBtu, which is 35 cents, or about 4 percent, less than the previous Wednesday.

The largest natural gas price declines occurred in the Midwest this week with an average decrease of 57 cents per MMBtu. The Chicago Citygate natural gas price dropped below $8 per MMBtu for the first time since mid-November, but ended the week at $8.03 per MMBtu. The Northeast, which is the only region exhibiting natural gas prices over $9 per MMBtu, registered the smallest decreases.

Transco Zone 6 in New York decreased only 2 cents since last Wednesday to close at $9.44 per MMBtu yesterday. Although natural gas spot prices in all regions are generally $1 to $3 per MMBtu higher than this time last year, prices at most market locations are currently more than $1 lower than they were in mid-August before hurricanes Katrina and Rita. These lower natural gas prices have been achieved despite the continuing shut in of gas production in the Gulf of Mexico.

According to the Minerals Management Service, shut-in natural gas production was 1.656 Bcf per day as of Wednesday, January 25. The cumulative shut-in amount since August 26, 2005, was 609 Bcf, which is equivalent to more than 3 percent of yearly U.S. production.

After gaining almost 60 cents in trading last Thursday and Friday, the price of the NYMEX natural gas futures contract for February closed yesterday (January 25) at $8.46 per MMBtu, which is about 23 cents or 3 percent less than last Wednesday. This is the lowest price for this contract since the beginning of June and the lowest price for any contract through April 2009 currently listed on the NYMEX. Since becoming the near-month contract on December 29, the February natural gas futures contract has declined $2.70 per MMBtu or about 25 percent. On that date, it held a $1.15 premium to the Henry Hub spot price and remained in contango for most of the month.

Yesterday’s Henry Hub natural gas spot price, however, exceeded the February contract price by 4 cents per MMBtu, which reduces the economic incentive to keep natural gas in storage. The last trading day for the February contract occurs January 27. All other contracts on the New York Mercantile Exchange through October 2006 have followed a similar pattern with modest net decreases on the week, yet still exhibited prices yesterday above the Henry Hub spot price. The March natural gas futures contract decreased 24 cents on the week to settle at $8.637 per MMBtu yesterday and the April contract settled at $8.722 per MMBtu. All NYMEX futures contracts past October 2006 posted gains on the week. The 12-month strip, or the average price for contracts over the next year, decreased less than 1 percent to close yesterday at $9.366 per MMBtu.

Natural Gas Storage
Working gas in storage decreased to 2,494 Bcf as of Friday, January 20, according to EIA’s Weekly Natural Gas Storage Report. The current storage level is 445 Bcf, or 21.7 percent, above the 5-year average level of 2,049 Bcf and 191 Bcf, or 8.3 percent, above the storage level at this time last year. Although the implied net withdrawal of 81 Bcf is the largest weekly withdrawal since the week ending December 23, it is 51 percent lower than the 5-year average withdrawal of 165 Bcf and 62 percent lower than the 213 Bcf withdrawn at this time last year.

Continuing mild temperatures for this time of year across the entire country decreased heating demand and contributed to the below average withdrawal during the report week. According to the National Weather Service, temperatures, as measured by Heating Degree Days (HDD’s) were 25 percent warmer-than-normal for the week ending Thursday, January 19.

In particular, the regions in the middle of the country displayed some of the largest deviations from normal with the West South Central Census Division, which contains Texas and Louisiana, at almost 40 percent warmer-than-normal and the East North Central Census Division, containing the major market of Chicago, at 30 percent warmer-than-normal. The Northeast Census Division, which exhibited the most modest price decreases as described above, also showed more moderate temperature deviations at about 19 percent warmer-than-normal.

Summary of Weekly Petroleum Data for the Week Ending January 20, 2006

Crude Oil
U.S. crude oil refinery inputs averaged nearly 14.7 million barrels per day
during the week ending January 20, down 14,000 barrels per day from the previous
week’s average, as, apparently, some refineries continue to undergo maintenance.
Refineries operated at 86.2 percent of their operable capacity last week.
Gasoline and distillate fuel production both increased slightly compared to the
previous week, averaging nearly 8.7 million barrels per day and over 3.9 million
barrels per day, respectively.

Crude Oil Imports
U.S. crude oil imports averaged nearly 9.3 million barrels per day last week,
down 589,000 barrels per day from the previous week. Over the last four
weeks, crude oil imports have averaged nearly 9.8 million barrels per day, a
decrease of 119,000 barrels per day from the comparable four weeks last year.
Total motor gasoline imports (including both finished gasoline and gasoline
blending components) last week averaged 917,000 barrels per day. Distillate fuel
imports averaged 701,000 barrels per day last week, the fourth largest weekly
average ever.

Crude Oil Inventories
U.S. commercial crude oil inventories (excluding those in the Strategic
Petroleum Reserve) declined by 2.3 million barrels from the previous week.
However, at 319.1 million barrels, U.S. crude oil inventories remain well above
the upper end of the average range for this time of year. Total motor gasoline
inventories rose by 3.2 million barrels last week, putting them in the upper
half of the average range. Distillate fuel inventories increased by 1.8 million
barrels last week, and are above the upper end of the average range for this
time of year. Most of the increase was in high-sulfur distillate fuel (heating
oil) inventories, as low-sulfur distillate fuel (diesel fuel) inventories rose
only slightly compared to the previous week’s level. Total commercial petroleum
inventories jumped by 3.9 million barrels last week, and remain above the upper
end of the average range for this time of year.

Gas
Total products supplied over the last four-week period has averaged nearly 20.6
million barrels per day, or 1.0 percent less than averaged over the same period
last year. Over the last four weeks, motor gasoline demand has averaged 9.0
million barrels per day, or 0.9 percent above the same period last year.
Distillate fuel demand has averaged 4.1 million barrels per day over the last
four weeks, or 2.4 percent below the same period last year. Jet fuel demand is
up 3.9 percent over the last four weeks compared to the same four-week period
last year.

In analyzing crude oil markets, some people may look at market conditions now and find some comparable period in the past in order to draw conclusions about where the market is headed. Other people analyze current pricing patterns and use them as the basis for forecasting future prices. And still others will base their assessment of oil markets on their expectations for the future, or their assessment of “forward fundamentals.” So, in analyzing oil markets is it best to: A) look to the past as a guide, B) use real-time pricing levels as a key barometer, or C) look to “forward fundamentals” as providing the best insight into oil markets? Long-time readers of This Week In Petroleum may have already guessed the answer: D) all of the above.

It can be valuable in gaining insight into current U.S. oil market conditions to look backwards towards the past. While it doesn’t receive the fanfare that the release of weekly data receives, EIA’s Petroleum Supply Monthly (PSM), which provides detailed monthly data nearly 2 months after the end of a given month, can be a valuable tool for analysts. For example, on Monday, January 23, EIA released the PSM that contains monthly data for November 2005.

This data showed that U. S. gasoline demand in November averaged nearly 9.1 million barrels per day, or about 0.1 million barrels per day less than the data for the four weeks ending December 2 (the closest weekly data representation to the month of November), despite the fact that in previous editions of This Week in Petroleum, EIA has noted that monthly gasoline demand data usually run at higher levels than exhibited by weekly data. The November shift in the relationship between weekly-based data and monthly data illustrates that it is important, although not sufficient, to understand the past to better understand the present.

Another mantra of some U. S. crude oil market analysts is that currently high prices indicate that markets are tight, and since the months further out in the current strip of crude oil futures prices remain well above $60 per barrel for many years, markets may remain tight for the foreseeable future. Some even go so far as to use the futures strip as a forecast, with the assumption that billions of dollars are at stake at these prices. But, of course, futures prices for delivery dates months or years away are at best a reflection of expectations based on known current conditions.

Studies have shown that using futures prices as a predictor, or forecast, is not any more accurate than many other methods. Yet, any look into the future should incorporate, in some measure, current conditions.

Thus, in understanding current U.S. crude oil market conditions, the analysis benefits from careful attention to insights derived from consideration of past and present data, as well as, future fundamentals based on current information. Reliance on only a subset of the available information unnecessarily constrains analysis, especially during recent years when oil markets have been extremely volatile.

U.S. Average Retail Gas Prices Gain 1.6 Cents

The U.S. average gas price retail price for regular gasoline was up 1.6 cents to 233.6 cents per gallon as of January 23, which is 48.3 cents higher than last year. Prices were up throughout the country, with the Rocky Mountains and Midwest showing the largest regional increases of 1.9 cents to 222.0 cents per gallon and 228.2 cents per gallon, respectively. California gas prices gained just 0.7 cent to 242.4 cents per gallon. East Coast gas prices, still the highest regional gas prices in the nation, increased by 1.4 cents to 239.5 cents per gallon.

Retail diesel fuel prices increased by 2.3 cents to reach 247.2 cents per gallon as of January 23, which is 51.3 cents higher than last year. Prices were up throughout the country, with the largest price increase occurring on the West Coast, gaining 4.3 cents to 260.8 cents per gallon, the highest regional prices in the country. East Coast prices increased 2.7 cents to 251.6 cents per gallon, with New England prices gaining 0.5 cent to 266.8 cents per gallon.

Residential Heating Oil Prices Rise Anew While Propane Prices Drop Slightly

Residential heating oil prices increased for the period ending January 23, 2006. The average residential heating oil price rose by 3.2 cents last week to reach 246.3 cents per gallon, an increase of 47.3 cents from this time last year. Wholesale heating oil prices increased by 13.8 cents to reach 187.1 cents per gallon, an increase of 44.3 cents compared to the same period last year.

The average residential propane price decreased 0.2 cent, to reach 201.2 cents per gallon. This was an increase of 28.1 cents compared to the 173.1 cents per gallon average for this same time last year. Wholesale propane prices increased 4.6 cents per gallon, from 103.9 cents to 108.5 cents per gallon. This was an increase of 25.4 cents from the January 24, 2005 price of 83.1 cents per gallon.

Weekly U.S. Retail Gas Prices, Regular Grade
Dollars per gallon, including all taxes

1/2/06 1/9/06 1/16/06 Week Ago Year Ago

Gas Prices - Region
U.S. 2.327 2.32 2.336 0.016 0.483
East Coast 2.37 2.381 2.395 0.014 0.535
New England 2.377 2.397 2.414 0.017 0.554
Central Atlantic 2.407 2.422 2.452 0.03 0.571
Lower Atlantic 2.341 2.345 2.347 0.002 0.504
Midwest 2.332 2.263 2.282 0.019 0.435
Gulf Coast 2.272 2.267 2.281 0.014 0.492
Rocky Mountain 2.2 2.201 2.22 0.019 0.428
West Coast 2.304 2.372 2.386 0.014 0.468
West Coast less CA 2.264 2.295 2.322 0.027 0.474

Gas Prices - State
California 2.328 2.417 2.424 0.007 0.465
Colorado 2.278 2.25 2.24 -0.01 0.463
Florida 2.367 2.381 2.4 0.019 0.497
Massachusetts 2.334 2.351 2.369 0.018 0.542
Minnesota 2.293 2.202 2.199 -0.003 0.365
New York 2.543 2.566 2.593 0.027 0.632
Ohio 2.368 2.243 2.267 0.024 0.384
Texas 2.274 2.261 2.273 0.012 0.492
Washington 2.233 2.263 2.302 0.039 0.478

Gas Prices - City
Boston 2.332 2.351 2.371 0.02 0.542
Chicago 2.401 2.359 2.351 -0.008 0.465
Cleveland 2.356 2.282 2.296 0.014 0.397
Denver 2.264 2.235 2.22 -0.015 0.464
Houston 2.261 2.267 2.266 -0.001 0.498
Los Angeles 2.321 2.439 2.435 -0.004 0.438
Miami 2.429 2.446 2.461 0.015 0.53
New York City 2.403 2.421 2.45 0.029 0.585
San Francisco 2.285 2.392 2.395 0.003 0.475
Seattle 2.177 2.23 2.26 0.03 0.452

NYMEX Crude Oil Futures
March NYNEX crude oil futures closed lower on Tuesday and below the 75% retracement level of this fall’s decline crossing at 68.05 as it consolidates some of its recent gains. The low-range close sets the stage for a steady to lower opening on Wednesday. Stochastics and the RSI are overbought and are neutral to bearish signaling that a short-term consolidation period is in. Closes below the 10-day moving average crossing at 66.16 would signal that a short-term top has been posted. If March crude oil prices can extend the rally off November’s low, August’s high crossing at 71.11 is the next upside target.

February NYMEX Heating Oil Futures
February NYMEX heating oil closed lower on Tuesday as it consolidates below the 38% retracement level of the September-December decline crossing at 187.90. The low- range close sets the stage for a steady to lower opening on Wednesday. Stochastics and the RSI remain bullish signaling that sideways to higher prices are possible near-term. If February heating oil prices can extend last week’s rally, the December high crossing at 189.80 is the next upside target. Closes below the 10-day moving average crossing at 177.61 would signal that a short-term top has been posted.

NYMEX Unleaded Gasoline Futures
February NYMEX unleaded gas futures closed sharply lower on Tuesday and closed below the 10- day moving average crossing at 176.45 signaling that a short-term top has likely been posted. The low-range close sets the stage for a steady to lower opening on Wednesday. Stochastics and the RSI have turned bearish signaling that sideways to lower prices are possible near-term. Closes below the 20-day moving average crossing at 173.51 would confirm that a short-term top has been posted. If February gasoline futures prices can renew this winter’s rally, the 75% retracement level crossing at 187.37 is the next upside target.

February NYMEX Natural Gas Futures
February NYMEX natural gas futures posted an inside day with a higher close on Tuesday as it consolidated some of Monday’s decline. The mid-range close sets the stage for a steady opening on Wednesday. Stochastics and the RSI are neutral to bullish hinting that a short-term low might be in or is near. If February natrual gas prices can extend this month’s decline, last May’s low crossing at 7.83 is the next downside target. Closes above the 20-day moving average crossing at 9.83 are needed to confirm that a bottom has been posted.

Crude oil futures fell for a second day as OPEC’s production and growing U.S. stockpiles eased concern supplies of crude from Iran and Nigeria would be interrupted.

Saudi Arabian Oil Minister Ali al-Naimi said the Organization of Petroleum Exporting (OPEC) Countries didn’t need to alter production at current prices, an Indian television channel reported yesterday. U.S. stockpiles, already higher than average, may have risen for a fourth straight week last week, a Bloomberg News survey showed.

New York Mercantile Exchange crude oil futures reached a four-month high of $69.20 a barrel yesterday on concern rebel attacks in Nigeria would further disrupt its oil output and on speculation Iran would cut crude exports to retaliate against any United Nations sanctions related to its nuclear program. Oil futures fell as much as 80 cents today, or 1.2 percent, to $67.30 on the New York Mercantile Exchange, where it was down 65 cents at 12:57 p.m. London time.

Brent crude futures for March settlement declined 50 cents, or 0.8 percent, to $65.66 a barrel on London’s ICE Futures exchange. Prices jumped 6.7 percent last week.

Growing Stockpiles of Unleaded Gas, Heating Oil
U.S. supplies of distillates, which include heating oil, probably climbed 938,000 barrels the week ended Jan. 20, according to the median forecast of 10 analysts in a Bloomberg News survey.
Warm weather in the U.S. Northeast is reducing demand for heating fuels, with temperatures forecast to remain higher than normal east of the Rocky Mountains through Feb. 6, according to the National Weather Service.

The Northeast uses more than 80 percent of the heating oil consumed in the U.S. Demand for heating oil will fall 16 percent below average in the week starting today, Missouri-based Weather Derivatives predicted yesterday.

U.S. gasoline supplies may have added 1.6 million barrels and crude oil stockpiles probably gained 1.3 million barrels as deliveries to refiners slowed during the start of the maintenance season, the survey showed. The Energy Department will publish its weekly inventory report tomorrow at 10:30 a.m. Washington time.

OPEC’s Output
OPEC, the source of more than a third of the world’s crude oil, meets on Jan. 31 in Vienna to discuss its production and quota policy. The group of 11 producers is pumping almost as much as it can, close to the highest level in 25 years, benefiting from selling oil at high prices and helping to meet rising world demand.

Crude oil futures reached a record $70.85 a barrel on Nymex on Aug. 30. It has dropped 4.5 percent since.

The U.S., France, Germany and the U.K. want Iran brought before the UN Security Council after it resumed nuclear research this month. UN sanctions could limit investment Iran needs to improve oil production, or prompt Iran to halt oil exports. Some analysts and traders say the impasse will last for months.

As the world’s fourth-largest crude oil producer, Iran pumps almost 5 percent of the world’s crude. Neither its output nor its exports have of crude oil been affected so far.