CRUDE OIL MARKET FUNDAMENTALS: While the energy complex has clearly rejected the lows posted in the prior trading session, we have to leave the edge with the bear camp into the trade today. It seems as if the trade fully embraced evidence of slowing recently and at times even discounted favorable economic readings. However, a slightly positive overnight bias in equity prices and a much stronger than expected German ZEW reading has partially tempered bearish macro economic attitudes. At least in the near term, the focus of the energy complex looks to be alternatively waffling back and forth between the outlook for demand and the direction of the Dollar. From a classic fundamental perspective, it is hard to suggest that the bull camp is destined to find strong evidence for its case, as swelling crude oil stocks are expected to be documented again in the weekly inventory reports due out this afternoon and again on Wednesday morning. With the energy trade seemingly focused on the threat of sagging energy demand recently, one should not underestimate the importance of the scheduled economic data today. To determine whether the US data is positive or negative to energy prices today, one probably needs to look for the direction of the equity markets just after the New York opening. While we can’t rule out a temporary climb back above $70.00 in October crude oil contract today, it might take a rise back above 985.90 in the September S&P to in effect but the bear camp in energies off balance. In the end, the bear seems to have control of the recent trend, but that control could be lost if the US Housing numbers rekindle recovery talk again.
GASOLINE: The October unleaded contract seems to have found a critical pivot point support around even numbers of 1.80. Since the market expects to see another crude stock build in the weekly inventory reports, it is possible that a weekly decline in gasoline stocks ahead will be discounted. As in a host of other physical commodity markets, the gasoline market clearly needs something positive from the macro economic front to shut off the selling bias that was in place over the prior two trading sessions. Therefore, the US Housing starts and permits data this morning probably takes on an added measure of importance, as the February through August rally of 90 cents was certainly built on expectations of a recovery. Because of the recent let down in economic sentiment, we doubt that gasoline prices will rise sharply in the wake of favorable economic readings this morning, but the sell off could restart aggressively, in the event of soft economic readings this morning.
HEATING OIL: Apparently the heating oil market saw some bargain hunting buying and in the process managed to respect the even number price zone of 1.80. In the action today the heating oil market will be a classic physical commodity market looking for direction from the economic front. As suggested in the unleaded coverage this morning, the bulls probably won’t get as much benefit from a good number as the bear camp gets from a slack number. In fact, we see solid resistance at 1.8679 unless the S&P mounts a sharp rise above the 985.95 level. Certainly the product markets are going to garner support from evidence of further declines in the refinery operating rate, but in looking at the annual surplus situation it is difficult to get bullish toward heating oil this winter, without a well entrenched recovery view in the marketplace.
TODAY’S ENERGY MARKET GUIDANCE: Without good US numbers the bear camp might attack.