Morning Futures Roundup

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Where Are Oil Prices Headed? Watch Heating Oil!

 Fundamentals

Although the U.S. appears to be awash in Crude Oil, the supply of middle distillates such as Heating Oil and Diesel are not so robust. The most recent weekly Energy Information Administration (EIA) energy stocks report showed that U.S. distillate stocks fell by 1.398 million barrels last week, to stand at 145.132 million barrels, which is the lowest level in just over 2 years. U.S distillate demand rose last week by 156,000 barrels per day (b/d) to 3.893 million b/d. The EIA is estimating weekly demand to average 3.81 million b/d this summer, which if accurate, would be a 2.3% increase from last year.

Distillate demand is robust, especially outside the U.S., and the EIA is estimating that the U.S. will export nearly 500,000 b/d during the summer months. Some traders believe that this increasing demand for distillates could contribute to increasing Oil demand, especially from Asia, and most notably China, where even rising fuel prices are not curtailing demand as much as expected.

Though "heavy sour" crude grades are in abundance in the world market, there is still tightness in higher grade "light sweet" Oil, which is easier for refineries to process and yields a greater quantity of higher demand products, such as gasoline and low sulfur diesel. A good sum of this higher grade of Oil comes from the politically sensitive regions of Northern Africa, where the current political upheaval has curtailed production of Oil from Libya, which produces a high grade of Oil mostly used by European refiners. As long as the demand for distillates continues to grow, it would be difficult for the price of high grade Oil to fall sharply longer-term given the current global demand for its products.



 Technical Notes

Looking at the daily chart for June Heating Oil, we notice the large spike down this past Thursday during the "Commodity Massacre". Though prices are well below the short-term 20-day moving average, the longer-term trend remains positive. The 200-day moving average, which is considered by many to be the barometer of whether a market is bullish or bearish, does not currently come into play until the 2.5850 area. The 14-day RSI "spiked" downward from a reading over 60 into oversold territory in 1 day! The current reading is off the lows, but still a weak 33.33. Support is seen at Friday's afterhours "spike" low of 2.7695, with resistance seen at the 4/19 low of 3.1325.

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