The Hightower Report

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CRUDE OIL MARKET FUNDAMENTALS: October crude oil has taken on a defensive stance ahead of key U.S. GDP figure and comments from Fed Chairman Bernanke. Outside markets appear subdued in anticipation of a reduced U.S. growth forecasts from the previous estimate of +2.4% down towards +1.0% to +1.3%. In fact, that uncertain economic backdrop was echoed by a Barclay’s report released Thursday that lowered their price outlook for crude oil in 2010 by 4.8% and in 2011 by 7.6%. Additionally, markets are anxious and somewhat hopeful ahead of Fed Chairman Bernanke’s speech that he may offer new ways to stimulate demand, and that is a factor that could save October crude oil prices. However, the fundamental picture for crude oil remains flush with ample supplies in the face of slumping demand, and that has some analysts forecasting OPEC shipments of crude oil to slip a fraction in the upcoming month to 23.38 million barrels per day. There was also data released overnight from India that pegged their July crude oil production jumping over 15.5% compared to year ago levels, at the same time refineries boosted output by nearly 14.0% in the same period. Finally, the softening U.S. demand outlook has weighed heavily on WTI crude oil compared to Brent crude oil spread relationships, and that sent the premium for Brent out to new two month highs. Technically, October crude oil is showing signs of further upside potential. Volume has been above average during the recent two day advance, as the market rebounded from severely oversold conditions, and that gives the bulls hope for more. Short term support for October crude oil lies at $72.35 to $72.20, which should contain weakness barring any demand shocks from this morning’s key data flow. The short term trend provides the bulls with the edge but that edge will be erased quickly if the US GDP is below 1%.

PRODUCT MARKET FUNDAMENTALS: GASOLINE: October RBOB prices got off to a shaky start after a gap lower open, but have since recovered to their best levels of the early morning trade. Prices have recovered from severely oversold levels, but now rely on improving demand fundamentals to continue higher. Perhaps a positive result from this morning’s U.S. GDP figures and/or upbeat comments from Fed Chairman Bernanke could provide a bullish catalyst. These two factors will most likely dominate the trade today and for now expectations are set at a very low level. It appears there has been a let up in South African demand overnight, and that pressured European gas crack spreads. There were also comments from cash traders that noted weak U.S. RBOB prices have begun to take their toll on European markets. Technically, October RBOB is trying to make a turn higher and is in the process of building a base. This morning’s early rally has eclipsed Thursday’s price highs, and that now opens the door for a further push toward $1.8820. If prices can hold trade above this level for some time today, there is potential for a further run back to $1.95. The bulls have definitive edge this morning, but have to contend with significant macro developments.

HEATING OIL: October heating oil prices managed to shake off weakness overnight and bounce from $2.01 support. The combination of an extremely oversold market and a rebound from four month lows has sparked the latest rally, and that favors higher prices in the near term. Trading volumes have been running above average levels during Wednesday’s wide range reversal and on Thursday’s move higher. For now, the bulls are closing in on resistance at the $2.04. October heating oil has good upside momentum and clearance of upside resistance levels could provide a further push toward $2.15 in coming sessions. However, this morning’s macro news flow certainly has the potential to extend the upside, but also poses a very significant risk if growth expectations are not met.

TODAY’S ENERGY MARKET GUIDANCE: Without better than expected GDP readings the bear camp might be able to regain control.

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CRUDE OIL MARKET FUNDAMENTALS: Fears over a double-dip recession are having their way with the crude oil market this morning as it looks poised for a further slide toward $72. The initial morning trade for October crude oil is lower after posting fresh lows for the move on the back of a stronger U.S. Dollar. The greenback penetrated upside resistance this morning to trade at the highs of the week, and that is tugging down physical commodities like crude oil. The energy markets continue to grapple with hangover effects of poor U.S. economic data that once again highlighted concerns of a further economic slowdown. The threat of escalating tensions in Iran has provided little support to crude oil recently and that underscores the market’s focus on the slumping demand outlook. Additionally, analyst forecasts for OPEC’s sea bound exports pointed to a 1.0% drop over the previous month to 23.24 million barrels per day. Overnight data from South Korea showed their crude oil imports were up 5.5% in July, but that does not seem to have much bearing on trade this morning. Finally, keeping with the merger and acquisition buzz of late, Korea’s state run oil corporation made a hostile bid for a UK petroleum concern in an attempt to secure additional oil supplies, but that does not appear to be embraced by the market this morning as a supportive element. In short, October crude oil is in the process of pricing in a double dip recession and probably needs an outside catalyst to turn the tape positive. Another factor that could inject further volatility into today’s trade is the expiration of the September crude oil contract, especially after an 11.4% breakdown in prices in August. Technically, the lead October crude oil contract remains in a pattern of lower highs and lower lows and action so far this morning broke down out of recent congestion. While short term momentum is reaching oversold territory, the primary driver behind the trade appears to be slow down fears, and that should provide the market with more negative power. Over the last four months, economic slowdown fears have formed a support zone for October crude oil below and around $72.00, and that looks like the next downside target for crude oil.

GASOLINE: October RBOB traded lower overnight and registered their lowest prices since July 7th. This also marks a breakdown out of the $1.92-$1.86 support zone, which now leaves the market on track to challenge the July lows down at $1.8417. A deteriorating global growth scenario coupled with a stronger U.S. Dollar is seen as the primary culprit to slashing demand expectations and weighing on prices. Storage data released Thursday from the Amsterdam-Rotterdam-Antwerp (ARA) storage hub saw a 4.26% jump in the latest week to 906,000 tonnes in response to slackening demand. Additionally, as a result of the trade sanctions on Iran, their gasoline imports were down about 90% in July compared to year ago levels, but that probably does not carry much weight in the Friday morning trade. The bears have the definitive edge this morning in October RBOB with some minor close in resistance above at $1.8850.

HEATING OIL: October heating oil saw a game changing trade on Thursday after eking out a new five day price high, as that positive action was followed by a negative price reversal on the charts. That shift in tone is being carried out again this morning, and that has pushed heating prices below recent congestion lows and into new six week lows. Obviously heating and distillate stock levels were very burdensome before yesterday, but seeing demand hopes crushed has clearly shifted sentiment in the market to a very negative condition. At least in the early action today, nearby heating oil prices have reached the lowest levels since July 7th.

TODAY’S ENERGY MARKET GUIDANCE: Expectations of rising supply and declining demand leaves the bear camp with the edge again today. In the event that equities weaken traders should expect to see fresh new lows for the move and perhaps a track toward the early July lows. The July lows would seem to equate to double dip pricing!

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CRUDE OIL MARKET FUNDAMENTALS: September crude oil grinded higher overnight and approached yesterday’s highs. A portion of the early strength comes from higher global stock markets and a weaker U.S. dollar that has broken down into new three month lows. Overall, recent economic data has highlighted doubts over a recovering global economy and challenges demand prospects. The latest supply figures out of Nigeria estimated the countries crude oil output to increase 0.96% in September, which easily surpasses OPEC production quota of 1.67 million barrels per day. The abundant supply theme was made more apparent with Wednesday’s EIA data that showed crude stocks rose 7.308 million barrels and are 12.924 million barrels above year ago levels. This provided quite a negative shock to September crude oil as the market was looking for a draw for the week and instead posted the largest weekly increase in inventories since October 2008 (94-weeks). Helping to explain this bearish supply dynamic was the 11.8% surge in weekly imports that approached levels not seen since August 2006. Crude oil imports for the week stood at 11.153 million barrels per day compared to 9.977 million barrels the previous week. The refinery operating rate was 90.60% down, 0.90% from last week compared to 84.57% last year and the five year average of 90.39%. Some analysts viewed the high capacity rates north of 90% indicative of lower crude oil prices ahead. September crude oil had to stretch in order to challenge support levels at $76 and experienced a dramatic reversal higher from those levels shortly after the inventory report. However, the short term trend is negative with resistance above at $77.75, which also represents a 50% retracement of this week’s $3.80 sell off. Negative short term price momentum has diverged from price, which favors the bull camp in the near term for a run back higher toward resistance. Longer term traders could use strength up to resistance as an opportunity to sell crude oil to position for a larger break in prices. While the short term trend points down, the overnight tone favors the bulls with the potential for a rally back toward $77.75.

PRODUCT MARKET FUNDAMENTALS: GASOLINE: September RBOB established a higher price high overnight and tries to correct the $0.12 break experienced over the last four sessions. Stronger outside markets and a much weaker U.S. dollar have helped bolster prices during the initial morning trade. Also providing some support was the favorable supply and demand data provided by the weekly EIA report. EIA gasoline stocks rose 91,000 barrels and are 9.169 million barrels above last year and 12.765 million above the five year average. This minor build compared to earlier estimates for a 300,000 to 500,000 barrel build, coupled with a huge jump in gasoline demand to the highest levels since August 2007 was seen contributing to the turn higher. Average total gasoline demand for the past four weeks was up 2.12% compared to last year. Gasoline imports came in at 1.082 million barrels per day compared to 1.175 million barrels the previous week. September RBOB appears short term oversold and likely to see further price appreciation back up to 2.0820, and perhaps 2.0900.

HEATING OIL: September heating oil tried to make the turn higher overnight and has fallen short of Wednesday’s highs just below 2.04. Heating oil received a boost after the EIA showed that heating oil stocks actually fell 34,000 barrels. However, supplies remain bountiful and stand 2.699 million barrels above last year and 5.008 million above the five year average. Distillate stocks at 167.513 million barrels are at a record high for this week. Previous record was in 2009. EIA distillate stocks rose 938,000 barrels and stand at 4.896 million barrels above last year and 31.614 million above the five year average. Distillate imports came in at 149,000 barrels per day compared to 174,000 barrels the previous week. Average total distillate demand for the past four weeks was up 9.33% compared to last year. September heating oil has upside potential in the day ahead to tackle 2.0475 with the potential of 2.0580. We doubt that September heating oil can overcome range resistance above at 2.0600 up to 2.0900. The short term trend in heating oil points up, and clearance above 2.04 has the potential to invite a quick rally in price to 2.07.

TODAY’S ENERGY MARKET GUIDANCE: Recent price action and a positive tilt overnight favors the bulls to start.

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CRUDE OIL MARKET FUNDAMENTALS: Crude oil prices look to be back under some pressure this morning as demand expectations are pinched due to fresh double-dip recession talk. We also think that demand expectations for physical commodities are reduced by the news of additional austerity measures from Spain and the UK overnight. Furthermore, physical commodity markets seemed to have lost the bullish buzz from the Chinese currency change yesterday and that would seem to leave the outside market influence negative for energy prices into the US Tuesday trade. A tenable physical supply and demand balance in energies was also confirmed by Goldman Sachs as they slashed their 3-month price outlook for crude by 9.0% (from the June 4th forecast). Furthermore, ABARE only expects WTI crude to average $74 in 2010 and with nearby futures prices sitting above that level into the opening today, there would seem to be more bearish views in place than bullish views today. Since the market garnered some support from talk of a sustained ban in deep water drilling earlier this month, it is possible that predictions from BP that deep water drilling can be done safely with improved technology, could be seen as a negative. However, faith and stock in BP is probably running very low and therefore the call for deep water activity is probably discounted. In the end, even technical price action has turned negative for August crude oil after a bearish reversal and the test of $80 yesterday. Monday’s weak close and range down action this morning casts a bearish bias and that could set the stage for a slide down to $78.86 or even lower if equity market losses become more significant.

GASOLINE: The RBOB market is clearly in a slight technical breakdown on the charts this morning and that action is mirrored by a mostly slack macro economic outlook. Talk of government spending cuts slowing global growth and therefore energy consumption is only partially countervailed this morning by talk that the US administration might be considering more aggressive sanctions against Iranian refiners. However, threats against product supply probably aren’t going to be enough counter overall weaker demand expectations today. While the US energy department reported average retail gasoline prices to be up 4.2% in the last week to $2.74/gallon that report might not have much of an impact on gasoline futures prices today. The EPA did delay a decision on implementing more ethanol in the US gas chain and that could eventually be seen as a supportive development for RBOB. In the end, the technical failure this morning looks to push August RBOB temporarily below the $2.10 level.

HEATING OIL: The heating oil market is showing signs of following crude and RBOB prices downward in the early going today, but as of this writing, the August heating oil contract hadn’t really seen much technical damage on its charts. With talk of rising refinery capacity in Brazil out to 2020, seen in the news overnight, the bear camp seems to have the advantage of the headlines. However, increased refinery capacity in Brazil is a long term potential and therefore that story is probably nothing more than negative psychology for the market today. Initial downside targeting is seen at $2.1172 basis the August heating oil contract with the magnitude of the coming break expected to be a function of the negative sentiment being thrown off by the equity markets.

TODAY’S ENERGY MARKET GUIDANCE: Renewed demand fears and an overbought condition leaves the bear camp with the edge today.

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CRUDE OIL MARKET FUNDAMENTALS: Overnight developments create a positive backdrop for Crude oil again today. A combination of a friendly Spanish debt auction and confirmation of better than expected May Chinese export data also appears to be supporting the energy complex. Inside the Chinese export figures, crude oil imports actually declined 15.7% from the record levels seen in April, but they remained up 4.4% from year ago levels. Global oil demand prospects also received another bullish lift yesterday from a upward (+1.98%) revision from the IEA for 2010 energy demand, but those forecasts were made off what they call an improving economic condition. This reasoning seems to run counter to comments from OPEC on Wednesday that suggested global financial uncertainty has continued to be a drag on demand for crude oil. However, in light of the favorable economic headwinds this morning, crude oil closes in on the upper end of the recent trading range at $75.40, which is a level that has been an obstacle during the previous three rally attempts. EIA crude stocks fell 1.829 mln barrels for the second straight week (that has not happened since January) and with inventories coming in much lower than some street estimates, that has also helped to tamp down oversupply fears somewhat. Still, implied demand has not clearly increased yet and that remains a key driver for the energy trade going forward. Crude oil imports for the week stood at 9.535 million barrels per day compared to 9.455 million barrels the previous week. The refinery operating rate was 89.10% up, 1.60% from last week compared to 85.85% last year and is the highest level since July 2008. In short, an improvement in sentiment has bolstered crude, but to extend above the late May and early June highs probably requires very significant equity market gains. The bulls have control to start today, with short term support seen at $73.72; but we also see fundamental headwinds once the July crude contract reaches the late May high of $75.72.

PRODUCT MARKET FUNDAMENTALS: GASOLINE: Positive economic headwinds created by strong Chinese export data boosts sentiment this morning for RBOB. This builds on an impressive performance seen Wednesday that provided July RBOB with a bullish chart tilt. OPEC said in their monthly outlook report that global refinery runs will probably stay low, while activity in the US will increase. While EIA data Wednesday showed gasoline stocks fell only 8,000 barrels the trade was expecting a decline of 400,000 barrels and therefore gasoline stocks are still 17.327 million barrels above last year and 10.543 million above the five year average. Furthermore, total gasoline demand continued to lag and for the past four weeks was down 1.01% compared to last year. Gasoline imports came in at 788,000 barrels per day compared to 954,000 barrels the previous week. However, the short term trend for July RBOB points upward, until the July contract retests resistance up at $2.10. While there might be initial resistance at $2.05 this morning the gasoline market is likely to claw its way even higher.

HEATING OIL: The tone this morning has a friendly slant for heating oil, as the market is being cheered on by positive export data in China and by favorable global demand estimates from the IEA. The trend for July heating oil so far this week is higher, favoring a continued push toward the 2.04 level. Wednesday’s highs of 2.0220 provided only minor resistance overnight. EIA heating oil stocks rose 293,000 barrels and are 4.273 million barrels above last year and 7.691 million above the five year average. Distillate stocks at 154.824 million barrels registers another new record high reading for this week. The previous record was posted in 2009. EIA distillate stocks rose much more than expected by 1.836 million barrels and stand at 5.106 million barrels above last year and 30.988 million above the five year average. Distillate imports came in at 236,000 barrels per day compared to 211,000 barrels the previous week. Average total distillate demand for the past four weeks was up 12.14% compared to last year. Diesel prices slumped for the 4th consecutive week, but prices remain $0.45 above year ago levels

TODAY’S ENERGY MARKET GUIDANCE: For the time being the market is upbeat on demand prospects and that helps the market play down or discount unfavorable crude, gasoline and heating oil stocks evidence.

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An unfortunate thing happened on the way to the “recovery.” The Euro zone crisis managed to entrench itself in the headlines, and that in turn kept consumer and investor sentiment off balance. While many economists had predicted a long, slow recovery process in the wake of the sub-prime mess, events like the early-May US equity market debacle could string the recovery process out even further. About the only positive from the May event was a sharp decline in energy prices. But under the current set of conditions, a little extra disposable income is hardly going to be the spark that reignites the recovery fire.

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The energy complex saw an aggressive liquidation wave in the month of May, and that wasn’t surprising considering that at the May high crude oil was trading $18 per barrel above the February lows. In retrospect, the washout was justified from both fundamental and technical perspectives. In addition to a mountain of physical supply sitting inside the US, the market was picking up on the prospect of reduced global demand. With the COT reports at times this spring showing speculators holding a massive net long position in crude oil, even the technical condition of the market was screaming for a correction. Surprisingly, crude oil market seemed to get around news of a slight slowdown in the Chinese purchasing managers reading, even though the prospect of strong Asian demand was helping to discount the ultra-high level of crude oil supplies on hand in Cushing, Oklahoma. With gasoline stocks failing to continue a pattern of declines seen earlier in the year and demand not ramping up as expected in the wake of positive views on the economy, there were just too many negatives for the market to ignore as it went into the May debacle.

With the probe below $67.50 in July crude oil and in the face of periodic bouts of deflation, we suspect that many US refiners will begin to ratchet down their activity, which could ultimately bring about a very solid low in prices. In the meantime, to avoid a retest of the May lows, it  would probably require evidence of rising weekly gasoline demand and a pattern of falling refinery operating rates. In other words, to see a bull market mentality return to the energy complex, we probably need to see some proof of tightening US gasoline stocks. Last year US gasoline stocks saw a decline of roughly 15 million barrels in the April through June time frame. It could take that size decline and perhaps even more to fully restart the bull market action in the energy complex.

It is possible that RBOB pricing will begin to garner some support from a seasonal pick-up in demand, and that demand pattern might also serve to cushion gasoline prices against the residual slowing fears that look to be propagated by the ongoing travails inside the Euro zone. Still, it might take a temporary return to the late May low of $1.8888 in July RBOB to put gasoline prices back into a deflated/cheap condition. Talk of stronger summer air travel this year and fairly active US trucking activity would seem to suggest that the product markets have a much better fundamental outlook than crude oil, which might see its physical supply condition worsen markedly in the face of scaled back US refinery activity. Therefore, we see RBOB pricing gaining on crude oil, and we see RBOB managing to gain on heating oil toward the end of June. For those that look at spread strategies, we think that RBOB will hold up better than crude oil on any near term weakness, and we expect RBOB to spring higher than crude in the event that the entire energy complex rebounds off of improving global psychology.

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CRUDE OIL MARKET FUNDAMENTALS: Outside factors seem balanced to begin today, as the US equity market has apparently recovered from late afternoon weakness seen in the US on Tuesday. Central bankers’ comments that they would continue to invest in the Euro currency was also seen as a positive to risk taking sentiment overnight but there continues to be an air of uncertainty in the marketplace. The effects of the BP Gulf oil spill are beginning to spread on other related energy companies, which were the leaders to the downside during Tuesday’s initial equity market sell off and that suggests the oil spill is weighing on investor and consumer sentiment. World markets have begun to highlight China’s footprint on energy demand, with the latest spread between Dubai and Brent crude oil trading at a premium and that could suggest that Asian buying is set to favor Angola and Brazilian crude. This week’s EIA report has been delayed 1-day due to the Memorial Day holiday and that might spare the bull camp another negative reading from the supply front. With crude oil putting in a weak performance Tuesday, after failing to hold early gains and ending quite weak, we have to leave the edge with the bear camp. The intermediate term trend off of the May highs is still down, and it could take very strong US equity market gains to send July crude oil back above the $72.50 level. Key resistance comes in at last weeks highs of $75.72 and that level could become a key lynch pin for any meaningful rally. Trading volumes remain light and below average and that would also seem to favor a continued back and fill type of trade

PRODUCT MARKET FUNDAMENTALS: GASOLINE: EIA’s recent weekly survey on average retail gas prices at the pump fell another $0.058 cents to a 3-month low of $2.73/gallon, but that is mostly catch up action. With the decline in gasoline prices bucking the typical seasonal pattern, it is clear that abundant supplies, weaker crude prices and fear of slowing off the euro zone are still giving the bear camp the edge. US refinery margins are expected to be lower due to a decline in product prices and while that might eventually be bullish for gasoline we don’t see the fundamental case to avoid another return to the $1.90 price level. In fact, RBOB made had a short term breakout to the upside early Tuesday, but was unable to sustain that move and then the market ended quite negative with an outside day down bear reversal.

HEATING OIL: While the July heating oil contract has managed to hold above the prior session’s lows in the early trade today, it is difficult to come away with a positive technical view from the charts. While initially higher US equity market action might lend a hand to the bull camp, this market is still being confronted with a mountain of supply and ongoing concerns of sagging global demand. It does appear as if the $1.95 level offers up some measure of technical support, but it will take a conclusive wave of outside market optimism to see prices return to resistance up at $2.0171.

TODAY’S ENERGY MARKET GUIDANCE: A temporary bounce might be seen off the initial favorable action in the equity markets but we are not sure the market is poised to see an all clear from the macro economic front. In short, we expect minimal short covering action to run its course, with the afternoon equity market action the real focal point of the energy trade.

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CRUDE OIL MARKET FUNDAMENTALS: Advancements on US financial reform overnight might remove some anxiety from the marketplace but apparently euro debt fears are set to captivate markets and weigh further on crude oil prices. In fact, with global equity markets trading lower after a favorable German vote on the $1-Trillion Euro backstop plan, it would not seem like anyone is looking for positives in this market. Crude oil remains in a vulnerable status as it attempts to reconcile future supply and demand. Increased potentials of a further economic slowdown helps explain the massive liquidation seen recently. Open interest in crude oil lost over 100,000 contracts on Tuesday & Wednesday which suggests the reduction in extreme net long spec positions (long 201,286 as of 5/11/2010) is taking place. Late Thursday, the market saw more private forecasts of burdensome US crude inventories at Cushing and that has to give the bear camp confidence to press prices even further. July Crude had an outside day down, with a very weak close yesterday that should leave the market capable of a slide toward the July 2009 lows of $66.11. Intra market spreads have narrowed +$1.50 during the last week indicating the -6.3% plunge in crude prices may have normalized part of the oversupply issue and “eventually” that might pave the way for a good value play to buy crude oil. In short, looming Euro debt uncertainty remains the primary driver of trade and that adds further risk premium selling to the trade. It might take some type of surprise statement from outside of the EU/IMF or a massive coordinated currency intervention to provide any meaningful bounce in crude oil prices

PRODUCT MARKET FUNDAMENTALS: GASOLINE: Negative macro issues continue to hamper RBOB and even with the market closing in on downside technical price targets, there doesn’t seem to be cause to pick a fundamental low yet. For now, the trend remains down in July RBOB, with support seen at 1.8950. While demand hopes might try to gain some traction off news that AAA forecasts US Memorial day travel to increase by +5.4% compared to 2009 levels, the big picture macro economic news is so negative that minor demand side news is going to be largely discounted. AAA pointed to an improving US economic recovery as the motivating factor behind their increased demand forecast but most markets are unwilling to accept ongoing recovery in the face of the European turmoil. European gasoline remains weak on the back of weak crude prices and lack of arbitrage opportunities to export to US, merely serves to slow the washout in US prices.

HEATING OIL: The demand story remains front and center as the Euro area debt fears take their toll on global recovery prospects. July heating oil so far has been unable to take out its February lows at 1.8750, making it the “less bad” leader in the US in the energy complex. The trend remains down with support below at 1.8904. Thursday’s slide satisfied downside price objectives of 1.8890 created by May’s decline but we don’t see a fundamental reason to play for a low yet. Traders need to see some type of major financial market event like coordination to play for a low.

TODAY’S ENERGY MARKET GUIDANCE: Fears of weak demand and burdensome supply evidence leaves the bear camp with all the cards.

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CRUDE OIL MARKET FUNDAMENTALS: June crude oil has found its footing once again as a stronger US equity market and the easing of EU debt tensions have helped energy prices to lift themselves away from this week’s lows. While the EIA storage numbers still indicate high stocks levels for crude oil and near-record stocks levels for the products, it has been strong domestic and overseas demand expectations which have supported prices at these levels. The large jump in the EIA refinery operating rate this week may be a sign that the industry is ramping up for the summer driving season ahead and that could indicate a coming increase in demand for crude oil. However, EIA crude stocks rose 1.963 million barrels and are 11.18 million barrels below year ago levels. Also, crude stocks stand 17.028 million barrels above the five year average. Crude oil imports for the week stood at 9.681 million barrels per day compared to 9.613 million barrels the previous week. The refinery operating rate was 88.95%, up 3.02% from last week and compared to 82.67% last year and the five year average of 87.36%. While the debt crisis isn’t all clear, the energy complex will show its prevailing bullish tilt with its action today. However, to see July crude oil prices rise above the 88.00 level probably requires a putting down of the Euro debt crisis, renewed evidence of Chinese energy demand growth, or a distinct supply side threat. However, we can’t rule out an attempt to return to near term resistance of $87.70 in the July crude oil contract. If the debt crisis really calms down and the US recovery continues crude oil can eventually trade north of $90.00.

GASOLINE: The draw in gasoline stocks this week may be a signal that gasoline prices have some fundamental support. Seeing the witch hunt to impose speculative trading limits means that prices will be restrained by the fear of an “out of left field” bearish event, but the implementation of tighter spec limits will probably caused a sharp set back and then a massive explosion, as the market sends a message that limits aren’t the answer. Higher prices are the answer to speculation and unrelenting demand, but the inability to see prices reach a level that really causes change is allowing the situation to get worse rather than better. Nonetheless, EIA gasoline stocks fell 1.240 barrels, and are 9.985 million barrels above last year and 17.082 million above the five year average. Average total gasoline demand for the past four weeks was up 1.62% compared to last year. Gasoline imports came in at 985,000 barrels per day, compared to 756,000 barrels the previous week. Unlike crude oil prices gasoline prices are much closer to their highs and we aren’t sure that we can justify an upside breakout or even a sharp continued rise in unleaded given the uncertainty on the Euro zone debt front. The market can rally today, but prices are at a precarious junction.

HEATING OIL: The build in distillate stocks shown in the EIA storage numbers has kept storage levels at record high levels for this time of the year, although some of that could be a temporary result of the temporary cut back in demand from Europe and some could be the result of a still sluggish economy. However, Distillate stocks at 151.82 million barrels are at a record high for this week. The previous record was in 2009. EIA distillate stocks rose 2.937 million barrels, and stand at 4.82 million barrels above last year and 35.043 million above the five year average. Distillate imports came in at 252,000 barrels per day compared to 106,000 barrels the previous week. Average total distillate demand for the past four weeks was down 3.01% compared to last year. EIA heating oil stocks rose 1.614 million barrels, and are 7.364 million barrels above last year and 10.257 million above the five year average. With June heating oil prices sitting within close proximity to highs for the year, Congress and those pushing for speculative limits must be very happy, but unfortunately the markets are signaling future tightness and the inability of the world to meet growing product demand that is the result of a ramping up of individual transportation needs and the total lack of expansion in global refining capacity.

TODAY’S ENERGY MARKET GUIDANCE: The path of least resistance is higher but the overall macro economic condition is still highly suspect and any deterioration in the Euro zone debt situation could yank the rug out from under the bull camp.