The Energy markets showed strength even as inventories rose on the last API report primarily because of the latest cold front to move through the northeast region of the U.S. Temperatures are expected…
to be roughly 6% colder than average and while refineries for the Distillates are pumping at pre September levels of about 90% they are still behind the average at this time of the year that exceeds 94%. With the current supply levels the fear remains that as winter demand kicks in the inventories will begin to drop at a rate much quicker than the present refinery capacity can keep pace with. More important than the reality of this current supply and demand picture is the hypersensitivity this market has shown over the past year to any Bullish news.
The Natural Gas market traded above 15.50 for the first time in over two months signaling the retest of the all time high of 15.60 in the near future. This is probably the market with the most upside potential in the energy complex. With production still down by over 25% overall due to hurricane damage to offshore facilities in the Gulf, the prospect of being able to maintain adequate supplies throughout the expected winter seems less and less likely and the ability for this market to reach 20.00 seems more realistic than ever.
This week should set the tone for the next few weeks as we will see the first Department of Energy report that truly reflects the impact of winter on the supply and demand picture. That being said I am looking for Crude to trade upward to around 62.00 or 63.00 by weeks end. Heating Oil should come out of the recent doldrums and trade higher as well, I have an upside target around 183. Unleaded should be the laggard of the bunch as inventories continue to rise and demand steadies but this environment should be supportive at the least.
Natural Gas has explosive upside potential and I expect us to break through previous resistance by mid week with a finish above 16.00. Matt Odom 12-9-05
Odom & Frey Futures & Options