Last week was a consolidation period for the Crude market as we saw the market drop and retest support above 6250 at the beginning of the week only to trade higher throughout the week on a mixed inventory report and continued questions on future supply problems. Shortly after trading at an all time high of 7080 five weeks ago, Crude has found itself range bound between 6250 and 6825 (roughly 5.00). This range should continue to tighten and I expect to see it trend to the upper end of the range until we move decisively higher. The sleeper fact out there right now is that there will most assuredly be worse damage to the platforms than is being reported. Every storm that has tracked through platform alley has been underestimated and the amount of time that is needed to get the offshore operations up and running is always too optimistic.
The only saving grace at this point is that the demand for unleaded has shown some weakness and the refineries themselves are down. If not for that I believe we would already be trading above $80.00 a barrel. We should hear more news this week regarding the platforms but I don’t expect that to be the market mover. The markets will more than likely pay attention to the API data on Wednesday and whether or not we have been able to create any builds or at least keep from suffering a major draw down up to this point.
While Unleaded traded at new highs in the middle of the week, the end of the week was not nearly as strong as the build data from Wednesday actually showed a 4.4 m/b build rather than the draw that was predicted by analysts. The build is the result of the seasonally lower demand that typically rolls around after Labor Day coupled with the high prices at the pump and imports of refined product from European countries rolling in. This weeks data should be more indicative of the our real supply situation as we have received most of the imports and will probably have a better picture of where demand is headed at this point.
Heating Oil and Natural Gas may become unhinged from the rest of the complex as the winter rolls around. These are substitutive commodities in the event of an extremely cold winter or supply shortage of either one. Currently both of these commodities are on the hot list because of their inability to create the builds necessary for a seriously cold winter. Several Heating Oil refineries are at least 3-4 weeks behind with many insiders whispering that it may take another 3-4 weeks to get them up and running to full or near full capacity. Natural Gas has also been slow trecover from the destruction of the rcent storms. Last weeks data while showing builds of 58 b/c/f, still fell short of analysts expectations of a 60+ b/c/f build. As we are now trading in uncharted territory for this market the top is not very predictable and there are no reigns on this market if we begin to see signs of an early winter. Matt Odom 10-03-05
Odom & Frey Futures & Options
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