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CRUDE OIL MARKET FUNDAMENTALS: Crude oil has seen a choppy two sided trade overnight but the market seems to have a positive bias since oil has so far held up fairly well despite the bearish API reading. API reported a jump in oil stocks that were twice as high as expectations but the trade seems to be instead focusing on a much sharper than expected decline in distillate stocks. A weaker Dollar and firmer Euro have also provided some price support to crude oil in the early going on rising investor risk appetite. Also, news that Greece has adopted more austerity measures seems to be providing a bit of macro economic optimism to the oil markets. But so far the buying conviction in crude oil up at these high price levels hasn’t been that strong leaving the market still looking a bit fragile. While macro economic sentiment seems to have improved, the demand outlook for oil remains sketchy typified by news that Japanese crude oil stocks fell to a three month low on week refinery demand and inventory adjustments ahead of Japan’s fiscal year end in March. Oil markets have been closely following the ebb and flow in the equity market and overnight gains in oil have likely been limited by a lack of clear direction in equities which have only managed to edge higher at times despite the positive news on Greece. But crude oil may be in a holding pattern ahead of a variety of market impacting reports on inventories, US service sector growth and private employment. Most traders are expecting the EIA report to show a 1.3 million barrel gain in oil stocks and a rise in gasoline stocks, but a nearly 1 million barrel drop in distillate supplies. But in the end, the economic news and outside market influences may have more of an impact on oil market direction, especially if the inventory report comes in close to expectations. While April crude oil has consistently failed up at these price levels, the market has also held around the 40 day moving average on price breaks which comes in at $78.04 today. Yesterday’s probe above the February high would also seem to give April crude oil more of an upward tilt. We get the sense that crude oil will make another upside run attempt this session and seeing a close over yesterday’s high will put April crude oil on course to test the January high. But if another failed rally attempt is seen, we suspect the $78.00 in April crude oil is likely to hold.
GASOLINE: Gasoline has also seen a choppy two sided trade overnight and to the bull camp’s favor it is impressive the market has held up so far despite the API reporting a higher than expected rise in fuel stocks. Gasoline has led rally attempts in the complex on optimism that improving economic conditions will raise fuel demand this spring which could tighten supplies if refiners keep operating rates below average. There is a strong tendency for gasoline prices to rise through April and this view has attracted buyers on price breaks in gasoline. But the upside so far in gasoline has been capped by high fuel supplies and demand readings that remain weak despite signs that economic conditions are starting to improve. In fact, the latest retail pump survey showed a 1.1% rise in gasoline demand last week compared to a year ago, but the four week average demand reading was still slightly weaker than a year ago. Traders are expecting to see more than a 500,000 barrel rise in gasoline stocks in today’s EIA report. But like crude oil, the gasoline market seems to have more of an upward tilt and if today’s news flow is generally positive, we suspect it could be enough to support a rally in April gasoline to test the February high. But if the market falls back on bearish news, we suspect a break in April gasoline will be limited to support at $2.1358, the market’s 40 day moving average.
HEATING OIL: Heating oil has seen a higher trade in the early overnight action with price support coming from yesterday’s bullish API report which showed a much larger than expected decline in distillate stocks, which fell despite a rise in the refinery operating rate and higher production. Reports that Chile may need to import diesel fuel, some US refinery snags and cold weather this week may be other factors providing some price support heating oil. But despite the inventory drop distillate supplies remain at record high levels for this time of year and that may still be a stumbling block for the bull camp to overcome. So far the upside in April heating oil has been capped at the $2.10 price level as the market has lacked a strong enough demand outlook to support higher prices. Therefore, we suspect the heating oil market will need a combination of bullish inventory and economic news along with supportive outside market influences, particularly from equities in order to make a clean break above the February high. Otherwise, look for April heating oil to fall back towards support near $2.0064, the market’s 200 day moving average.
TODAY’S ENERGY MARKET GUIDANCE: Oil markets seem to have an upward price bias giving the bull camp an early edge. But oil markets also look fragile at these higher levels and will likely need a bullish news flow today to inspire an upside breakout of ranges.
