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CRUDE OIL MARKET FUNDAMENTALS: To a degree one might temporarily throw out the energy market fundamentals today, as there appears to be a euphoria wave possibly stemming from the global equity markets. Clearly the markets are anticipating the US Financial Plan today and that in turn has prompted macro economic optimism, which in turn tempers demand destruction fears in energies and at the same time probably prompts some fresh outright speculative buying. With the Dollar also showing signs of ongoing weakness and a host of other physical commodities higher in the early going today, it would appear that the bull camp in the energies has a much longer list of arguments than the bear camp. Just to add to the initial bullishness, the markets also seem to have embraced news that China’s implied oil demand increased in February to over 7 million barrels per day, and that is up by double digits from the prior month and even more surprisingly that tally was up over year ago levels. Since that was also the first increase in over a quarter in those figures that would seem to foster hope that energies are seeing positive residual demand from China in a similar fashion as is being seen in the copper market. With a Japanese refiner also hinting that it will refine less crude in April due to weakening demand and refinery maintenance, one might even make the argument that conditions are setting up to support the product markets down the road. In the end, news that the US Administration is finally putting forth its plan to finance private sector purchases of toxic assets, as part of the financial recovery plan, seems to have given the bull camp the early edge today. The March 17th Commitment of Traders with Options report for Crude Oil showed the Non-commercial position to be net long 89,708 contracts, with the Non-reportable position also net long 1,845 contracts, and that made the “combined” spec and fund position net long 91,553 contracts as of early last week. While the crude oil market has already rallied another $2.00 per barrel since the COT report was measured, we don’t think that the technical condition of the crude oil market will hold back energy prices from a rally today. Near term upside targeting is seen at $56.40 basis the June Crude oil contract.
GASOLINE: With crude oil providing positive leadership early today, the Dollar weaker and equity prices showing strong early gains, that should give the bull camp the capacity to push May unleaded RBOB prices back above the $1.50 pivot point today. In fact, with some potentially supportive product news being seen from Japan overnight and a number of supportive outside market developments in the early trade today we have to distinctly favor the bull case. While the March 17th Commitment of Traders with Options report for Gasoline (RBOB) showed the Non-commercial position to be net long 52,005 contracts, with the Non-reportable position also net long 5,667 contracts, and that made the “combined” spec and fund position net long 57,672 contracts as of early last week we don’t think the technicals are set to limit the unleaded market on the upside early today. Once the $1.50 level is violated, the next resistance point looks to be $1.5630 basis the May contract.
HEATING OIL: While the heating oil market looks to be pulled up by the rest of the energy complex it is already clear in the early going that the gains in the heating oil market aren’t going to be as significant. While that is partly the result of milder temps, it is also partly because the supply side fundamentals and the demand fundamentals aren’t nearly as compelling. However, it would be our suggestion that heating oil is less technically overdone than other sectors of the energy market. In fact, the March 17th Commitment of Traders with Options report for Heating Oil showed the Non-commercial position to be net long 11,324 contracts, with the Non-reportable position net long 11,762 contracts, and that made the “combined” spec and fund position net long only 23,086 contracts as of early last week.
TODAY’S ENERGY MARKET GUIDANCE: The bulls have the edge off initial macro economic optimism and perhaps even because of a weaker US Dollar.
