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Enegries Review for Dec 7th


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The energies are slightly higher this morning as most major indices open up unchanged with the Euro gaining a bit on the USD to $1.3378. Crude Oil has seen a great flow of buying the last few weeks even as the non-farm payrolls came in under estimates with the US economy now facing 9.8% unemployment rate. Supplies are also forecasted to decline this week, "on increased demand from refiners as they boosted production." (1) Supply decrease with a positive reaction to negative non-farm payrolls is a potion for higher crude prices this week and I believe Jan Crude will break out above the $90 resistance level. To me, this market looks exactly like the market from early 2008 when Crude prices broke out to the upside as WTI spreads rallied to new highs. The back spreads are doing exactly what they did back in '08 as the Dec11/Dec12 contract now rallies to +150 and Dec12/Dec13 contract trades at +134. Remember, past performance is not indicative of future results. The strength in the back markets now pulling up the front of the curve slowly with Jan/Feb trading -38 and Feb/Mar trading -27. These spreads are meeting some resistance compared to deferred months but once these spreads flip from contago then it is off to the races for flatprice.

 

Interesting to see how Heating Oil and Gasoline are moving at the same rate as Crude with both the Heat and Gas cracks staying relatively steady during the move higher in flatprice and spreads. Heating Oil has seen an increase in price as the season kicks into gear and Gasoline stays a bit behind hence the contango in RB to HO and the lower prices for Gas cracks.

 

Arbs still stay weak as the Jan arb trades -2.00 with the brent flatprice and spreads being so strong right now. This is unusual to say the least in a rallying market as most of the time as the Crude price rises, the spread between the crude vs. brent will get stronger, but since brent has been so superior this reaction is not happening. The Jan arb has had a range from -290 to -190 in the last week and needs to be above -150 to break out to upside.

 

Natural Gas prices have been having a great time here above the $4.50 level with confirmation kicking in to the upside with a breakout above $4.50 today as January NG trades at $4.56. I believe this market has room to rally up in the coming weeks and with the momentum to the upside on simply everything Natural Gas should have no problem getting to $4.75.

 

- Daniel Cronin, Energies Guru

 

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