Weekly Energy Update |
March 8, 2010 |
Edition 35
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Topics Impacting Today’s Energy Market |
- US. Crude may want to challenge the January high of $83.95, with support coming from the investment side of the market. If the spot month crude contract takes out the January high, this would indicate an extended rally to near $96 through this summer. However, the underlying supply and demand doesn’t seem to support such a rally, since the current price climb looks like a seasonal rally with fundamentals still neutral to bearish. We will see if the thought process that investors have holds true on the expectation that the improved economic outlook will boost energy demand.
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- China: This morning it was reported that news from China shows that they will build two strategic oil reserve bases, in which the development is likely to underpin demand in the world's second-largest consumer.
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- Reports that China will build two strategic oil reserve bases is also adding to the bullish momentum as it would likely keep demands strong in the world’s 2nd largest consumer as the country moves to fill those reserves. Meanwhile, reports that OPEC is anticipating global demands to continue their recovery in 2010 is fueling expectations the cartel will leave production quotas unchanged at its March 17th meeting.
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- Government data showed a cut of 36,000 jobs in February when analysts had expected a drop of 50,000 and an overall unemployment rate increase to 9.8%. Why does this type information push the energy market higher? Analysts with the opinion that there will be additional improvements in unemployment correlate it with an increase in product demand. It’s as if these analysts are thinking unemployment has peaked, could this be the case? Time will tell. While job losses have slowed, there are still more unemployed people each week. US Labor Secretary Hilda Solis said “the February data showed stabilization in the economy, but more work is needed to increase jobs.”
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- Oil has risen over $12 in the last 30 days, inching toward the highs reached in early January. This trading range between $69 and $84 is expected to continue as the value of currencies fluctuates and the global economic recovery efforts dominate the headlines. The close today put crude values toward the top of that trade range. While the market could retest $83.95 it will take some effort to break it. Support holds around $77.30 where the 40 and 100 day moving averages came together today. A break of this number could shift focus back to the low 70’s.
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Department of Energy Inventory Report |
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Expectations on the gasoline and distillate inventory changes were as close to perfect as one can get, with the big shocker coming in the way of a 4.1 million bbl crude build. Expectations had been for a slight build thanks to an expected and realized increase in imports, but it came in better than anticipated – a little surprising considering the jump in refinery utilization rates as well. The knee-jerk reaction to the report pulled crude into the red and back below the $80 level, but the bulls are not giving up the fight and the contract is currently trading in the black.
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(All Values in Bbls)
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Crude
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Gasoline
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Distillates
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DOE
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4.1 Million
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700,000
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900,000
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API
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2.7 Million
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900,000
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4.1 Million
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Expectations
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1.4 Million
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600,000
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900,000
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Refinery Utilization
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Up 0.7% to 81.9% of total capacity; expectations were for a 0.1% drop
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4-Week Avg. Demands
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Gasoline:
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8.81 million bpd up 0.1% from last year
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Distillates :
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3.74 million bpd down 4.8% from last year
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Weekly Demands
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Gasoline:
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8.882 million bpd down from 9.064 million bpd last week
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Distillates :
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3.829 million bpd up from 3.662 million bpd last week
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Imports
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Gasoline:
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775,000 bpd down from 846,000 bpd last week
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Distillates :
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354,000 bpd down from 444,000 bpd last week
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Crude:
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9.236 million bpd up from 9.084 million bpd last week
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Charting the Market |
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As you can see in the above daily crude oil chart, yesterday crude oil edged higher to $82.41 but failed to close above the $82 level as the upside momentum remains rather unimpressive. Nevertheless, further strength is still in favor as long as the support of the 14-day moving average, which is at $80, holds, before the market pushes towards the high of $83.95 set in January. However, if we have a break below $80, some will argue that a short-term top is already formed and it should bring deeper pull back.
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PLC Energy Division News and Comment |
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Current projections are for Crude to trade in the $70 to $90 range for 2010. Today we are at about $81. When you look at the contract prices that are out there, we see about a $0.10 carry for spring contracts and a $0.25 carry for fall contracts. If projections hold true, we are set up for year where the best thing a person can do is to just let RFD work in your favor and take advantage of average pricing. This is especially true when you consider the value in not having your money tied up in fuel that is just sitting in your tank. Diesel is currently in the $2.50 ballpark. From now until fall is about 8 months. As you can see in the chart above, when you figure the cost of money at 7% interest, that equates to about &0.117 per gallon. Add in the $0.25 carry from now until fall and we would need to see diesel at nearly $2.87 before a contract or filling up now makes sense. If the $90 high on crude holds true, I doubt that diesel will be that high.
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CLICK HERE FOR MORE INFO!!!
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PLC Weekly Price Changes |
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Product
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Change in Price
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B5 Ruby Fieldmaster Dyed Diesel
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$0.10
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B5 Wintermaster Dyed Diesel
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$0.10
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B5 Roadmaster Clear Diesel
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$0.10
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B5 Wintermaster Clear Diesel
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$0.10
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B5 Ruby Fieldmaster Dyed Diesel Mar/Apr/May Contract
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$0.04
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B5 Ruby Fieldmaster Dyed Diesel Jun/Jul/Aug Contract
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$0.05
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B5 Ruby Fieldmaster Dyed Diesel Sep/Oct/Nov Contract
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$0.05
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# 2 Fuel Oil
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$0.10
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#1 Fuel Oil
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$0.10
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Super Unleaded Gasoline (87 Octane)
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$0.12
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Super Unleaded Gasoline Farm Use (87)
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$0.12
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Propane (Home Heat) Contracts
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$0.17
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Propane (Home Heat) Scheduled Delivery
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$0.17
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Propane (Dryer) Contracts
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$0.17
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Propane (Dryer) Scheduled Delivery
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$0.17
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Copyright 2009 Prairie Lakes Coop, CHS Service Center.
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The information in this document it taken from source which we believe to be reliable, but is not guaranteed by us as to the accuracy of completeness and is for informational purposes only.
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