Posted 05 July 2006 - 08:30 AM
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Per Friday’s CFTC numbers, as of week ago yesterday the non-commercials were holding their longest Henry Hub futures position in more than two years. Nevertheless, the front of the NYMEX board continues to languish. The first six calendar spreads are backwardated, and on Friday the spot Aug’06 contract settled at a $4.355 discount to the Feb’07. The Specs continue to build length, apparently unswayed by a 400+ Bcf year-on-year overhang that translates into more than two weeks of last summer’s gas-fired demand from the grid.
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According to last Friday’s CFTC numbers, the Large Specs increased their length in WTI for the first time since posting an all-time peak length of 94,094 contracts back on May 02nd. As of last week non-commercial length increased 10,068 contracts to 36,814. That is obviously only twofifths of the recent record Large speculative length. Thus, as we look ahead to this abridged trading week the funds certainly have enough "bullets in the chamber" to fire at the upside.
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Freight rates for shipping crude oil firmed for a fourth straight week with West African VLCC tonnage into the U.S. trading around worldscale 125 while scarce supply for Suezmax capacity pushed freight upwards of worldscale 175. U.S. refinery demand is strong. Per the latest EIA numbers imports for crude oil, finished products and blendstocks continue to surge, thus lending further support to freight markets. Over the last four weeks crude oil and petroleum products imports averaged 14.291 MMbbl/d, 1.74 MMbbl/d (13.8%) above the five-year normal. As such, freight should continue to firm through the summer into fall. Five and six-month deferred IMAREX VLCC forward freight agreements are trading around ws 185. |  |
Per the CFTC, open interest in the NYMEX RFG contract unexpectedly increased for the first time in a month-anda- half. Employment of the adverb "unexpectedly" is required given that open interest increased despite the fact the underlying physical for this contract no longer trades.
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Open interest in the NYMEX heating oil contract increased by 3,864 contracts as of a week ago yesterday. It was only the second increase in the last two months with interest climbing to 173,397, a seven-week high. The increase came as the Large Specs upped their length, while the Commercials increased shorts. As a result, net Commercial short interest (delivered into New York harbor) now accounts for 3/5ths of the heating oil inventories now in tank in the New England and Mid-Atlantic market areas.
Friday’s trade above 205.55 pushed us out of our bearish bias. As far as today is concerned, failure to support the June 28th pivot area from 201.00 to 200.23 alerts to further weakness towards the 14-day pivot moving average at 199.42. A close today below here will reinstate our |
bearish bias. Otherwise, a rebound above Friday’s 204.00 pivot high should find a path towards last Thursday’s 206.70 high print. A close here will force our bias to bullish. It will also allow bulls to target the May 12th pivot range from 209.65 to 211.05.
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NAT-GAS… NYMEX nat-gas continues to sink. Since mid-April the front-month contract for Aug’06 delivery has closed lower two out of every three sessions. As a result the contract has lost one-third of its dollar value or $27,460 per contract. As far as this week is concerned… failure to hold the post-Katrina 6.093 mean alerts to a test of the $6 psychsupport. Penetration here alerts to further weakness and a potential flush targeting the May 26th 5.750 (continuous) low print. Otherwise, closure of the June 22nd/23rd gap at 6.570 should find a path towards the 6.615 year-to-date mean. Penetration here then clears a track towards the 14-week pivot moving average at 6.755.
CRUDE OIL… WTI caught a bid for a second straight week. The market has now closed higher five out of six sessions since mid-June. As far as this abridged week is concerned, bids above the May 12th pivot range at 74.50 sets the table for an assault on the 75.35 front-month all-time peak and the Aug’06 life-of-contract high at 76.85. Strength above here will be sailing into uncharted waters. Our next line of resistance is not expected until 79.08. Of course, if we get this high we then have to ask… how can we not go to $80? Alternatively, a failure to hold last week’s 72.28 pivot area low alerts to further weakness towards the week’s 70.80 low print and this pit’s year-to-day mean at 69.81. Penetration here alerts to further weakness towards the next ratchet of support in the mid $60s, specifically the March 24th/28th gap from 66.55 to 66.00 and the 30-week pivot moving average at 65.54. | |  | 
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