 |
Tomorrow the market is expecting the EIA to report the fourteenth injection of the 2006 refill-season into underground storage, another (well) below average 60 Bcf. This compares with last years (well) below average 59 Bcf injection and the five-year average of 76 Bcf. Thus, a draw in-line with expectations will serve to maintain the year-onyear surplus at around 425 Bcf, but narrow the surplus to the five-year average to around 550 Bcf… give or take a Bcf or two amongst friends.
 |
Last week the DOE reported a much larger than expected 5.99 MMbbl draw in crude stocks. Apparently, the suspension of vessel traffic transiting the Calcasieu ship channel and the attendant disruptions to downstream capacity in and around Lake Charles manifested. In fact, four out of nine barrels of last week’s draw accrued in PADD III (GoM).
Nevertheless, despite recent draws, crude stocks still maintained a comfortable 29.89 MMbbl surplus to the fiveyear average. The channel was reopened to vessel traffic over the 04th of July weekend, and therefore should not pose a factor to this morning’s report. Speaking of which, market cognoscenti are expecting the DOE to report a draw in oil stocks of around 0.75 MMbbls. A draw of this magnitude corresponds to seasonal parameters and will thus serve to maintain the yearly overhangs, which are 14.3 MMbbls (4.5%) year-on-year and 29.9 MMbbls (9.8%) to the five-year average. Thus, the supply-side disposition of this market appears comfortable.
Meanwhile, WTI bulls stranded from last Friday’s "island reversal" have been annihilated. It took the bears two days |
to undo what took the bulls three weeks to accomplish. Be that as it may, and despite our bearish fundamental view, we are not prepared to change our WTI bias to bearish. We still see downside risk, but we expect to see considerable support between 72.00 and 71.00. Besides, it is awfully hard to get bearish a market that is contangoed out through September 2009.
As far as today’s Aug’06 penultimate session is concerned… post DOE sellers below yesterday’s 73.50 low print should find a path into the pivot range from the week ended June 30th, i.e. the end of the second quarter between 73.14 and 72.51. Should the bulls successfully defend a retracement into this area of support then hello $80. Otherwise, bears will continue to push towards our critical point of reference between the April 04th extension at 72.07 and the June 27th/28th "double bottom" at 71.60.
Alternatively, a rebound above the 14-day pivot moving average, 74.42 cautions to further corrective trade towards the top of yesterday’s pivot range, 75.08. A close above here sets the table for bulls to attempt to close Monday’s island-gap at 76.90 on Thursday’s expiry. |  |
Freight rates firmed last week on concerns regarding the reliability of Arab Gulf (AG) supplies given the current war footing. The geo-political premium is also affecting the West African to USGC route. Suezmax tonnage into the Gulf Coast finished the week north of worldscale 150. 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 13.87 MMbbl/d, 1.38 MMbbl/d (11%) above the five-year normal. As such, freight should firm through the summer into fall. Five and six-month deferred IMAREX VLCC forward freight agreements are trading over ws 190. |  |
As far as the DOEs are concerned, the market is looking for a draw of between 0.75 and 1.0 MMbbls. Last week the DOE reported a 426 Mbbl (0.2%) drop to 212.7 MMbbls. The report was enough to nudge the disposition back to a surplus, albeit by the thinnest of margins (10 Mbbls), but a surplus nonetheless.
As far as today goes, post DOE sellers below the bottom of last week’s gap, 226.00 are likely to encounter support inside last Wednesday’s pivot range from 224.39 to 222.00.
Penetration here clears a path towards the next ratchet of support between the March 28th extension, 219.86 and the year-to-date, 218.59. Otherwise, a rebound above yesterday’s 230.30 pivot area high alerts to further corrective trade back towards the 235.00 life-of-contract high. |  |
Regarding today’s DOEs, the market is expecting a 1.75 MMbbl build in distillates. Last week the DOE reported a 3.04 MMbbl (3.9%) surge in diesel fuel stocks. As such, stocks increased to 78.77 MMbbls, a 17-week high and the highest level for this point in the season in the last 14 years. Better still, forward cover jumped nearly one full day to 24.6 days.
As far as today goes… post DOE sellers below the July 10th pivot range from 198.15 to 197.20 alert to continued weakness towards last week’s 195.30 low print and the March 28th extension, 193.44. Alternatively, a rebound above the $2 critical point of reference cautions to further corrective trade towards 203.27, the 14-day pivot moving average. |  | | Reserved for Subscribers |  | | Reserved for Subscribers |  |
NAT-GAS… NYMEX nat-gas ended a three-week slide last Friday and rallied off a two-year low as a result. As far as this week is concerned closure of the June 22nd/23rd gap from 6.480 to 6.570 alerts to follow through momentum and clears a path towards the Katrina-mean, 6.883. Penetration here will next likely test $7, then the June 19th/20th gap between 7.050 and 7.060. Above here bulls can then target the next gap, this one from June 16th/19th between 7.200 and 7.300. Alternatively, sellers below the long-term mean, 6.258 alert to further weakness towards the winter-mean, 6.042 and the $6 psych-support. A close below 5.940 stalls last week’s rally and cautions to further weakness back into the mid-$5.50s.
CRUDE OIL… Last the WTI complex rocketed into uncharted waters capped by Friday’s all-time peak of 77.95, the highest price ever paid for prompt barrels in the history of the NYMEX contract. To add insult to injury, the spot Aug’06 is the cheapest on the board for the next 27 contracts, going all the way out to Nov’08. What’s more, eight contracts, stretching from Dec’06 to Jul’07 all closed at-or-above $80 per barrel while the Cal’07 strip settled at 79.99. In other words, Friday’s record was no fluke. As far as this week goes… bids above last week’s 77.95 high print in the Aug’06 alerts to follow through bullish momentum towards intra-week resistance at 78.89. A close here early in the week sets the table for a push against the $80 psych-barrier and 82.39. Alternatively, a failure to hold last week’s 76.50 pivot area high cautions to potential attempts to close last week’s gap from 75.85 to 75.05. Further selling below the bottom of the 3-day pivot range at 74.18 could find a path towards the 14-week pivot moving average at 72.02. | |  | 
For more information on the Schork Report click here | |
