By Matt Odom, Managing Broker, Odom & Frey Futures & Options
The statement of the week had to be when Andrew Lebow of Man Financial Inc. said “Maybe there is some elasticity to petroleum demand after all”. Not that he just came to that realization but rather that it seems that many talking heads seemed to suggest otherwise. The fact is that while high prices would be…
expected to catch the attention of the lower income bracket, it’s obviously taken its toll across the board. The decline in demand over the last month was twice as large as the usual end-of-summer drop-off and some analysts expect the trend to continue, even if prices fall. Thursday posted some seriously bearish moves last week as crude traded below previous support of 6250 on a closing basis at 6136 for and Unleaded broke major trendline support at 1.95 on a closing basis at 1.84.
The next couple of EIA reports are going to be the only way to determine if this is a flash phenomenon or truly a sign of shrinking demand for Unleaded in the future. We do know that resale values at least on the wholesale front, trade in values are decreasing for large vehicles, primarily SUV’s which is reminiscent of the change in the American psyche when we had the energy crisis in the 70’s. For those of us old enough to remember, that is when Toyota, Honda and other small car manufacturers made there place in the markets while large cars became relics and earned the name gas guzzlers.
Looking ahead, the jury is still out on whether this is truly indicative of the demand picture to come. As economies in the storm affected areas start to come to life again and the seasonal lull starts to dissipate we may see this trend reverse. However, as this market has crumbled through technical support recently, I suspect we may be headed south regardless of the immediate supply picture. In the Crude Oil market I’m looking for a short term rebound here in the interim until we gain a clearer demand picture in the next 2-3 weeks.
Natural Gas and has its own set of issues. Primarily the problem is that 1/5th of all production was halted due to storm related damage to the pipelines. Recently a report out of North Texas projected that Texans could end up paying 60 to 90 percent more to heat their homes with Natural Gas this winter. To put that in perspective, last year Texans paid roughly $350 and this year they could pay nearly $700 for that same period. Needless to say this is all contingent upon the weather and the market is more or less positioning itself in the mid range of where prices could go in the event of a long cold winter. Last week recorded a record high price of 14.75 but settled down on the week at 13.22 by Fridays close.
This looks like a great opportunity to get long both Natural Gas and Heating Oil, as both of these markets are trading very near trendline support. To get long either of these markets with protective sell stops just below trendline support is an opportunity that doesn’t come around very often. Matt Odom 10-7-05