[MrBill]

Crude oil is up $2 from Friday's low on a weaker USD, and concerns over Iran's response to the UN regarding their nuclear ambitions. As are the precious metals as well.

This rally takes crude out of the oversold territory on the trade envelopes. Noted is that Brent is up +120 pts. versus WTI which is up only +60 pts. (at time of writing). Maybe linked to pipeline problems out of Russia, but may also just be that Brent has tended to react more strongly to geo-political supply concerns more than the USA which is seen as well supplied with crude stocks?

In any case, the bias is higher. I think the WTI may test the 0.382R resistance of last week's move lower - circa $72.40-50. Support at $71.46-71.75 and resistance at $73.85-74.05 area based on the moving averages.

$this->bbcode_second_pass_quote('', ' ') COMMODITY PRIMER

Crude oil unplugged

Which types of crude oil are considered as a reference point or benchmark in the oil market?

The Western Texas Intermediate (WTI) from the US, Brent Blend from the North Sea and Dubai Fateh crude from the Middle East are the three main regional crude oil benchmarks, also known as ‘marker’ crudes. These benchmark grades serve as reference points for buyers and sellers in the oil market.

What are the major factors influencing oil prices?

Oil prices are highly sensitive to factors like world oil demand, dollar fluctuations, terrorism, climatic and other unforeseen geo-political factors that cause supply disruptions, OPEC output and supply, announcements from various world oil organisations like American Petroleum Institute/Department Of Energy, etc.

Which countries are the members of The Organisation of Petroleum Exporting Countries (OPEC)?

The current OPEC members are Algeria, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates and Venezuela.

What is the OPEC basket price?

The OPEC basket price, which was introduced on January 1,1987, is an arithmetic average of the prices of seven crude oils which form part of the basket .The following are in the basket: Algeria’s Saharan Blend, Indonesia Minas, Nigeria Bonny Light, Saudi Arabia Arab, Dubai Fateh, Venezuela Tia Juana and Mexico Isthmus.

How much crude oil does India import out of its total oil consumption?

India’s total oil consumption is about 2.5 million barrels of crude oil per day. India imports about 70% of its total oil consumption.

What is Middle East sour crude oil?

It is a heavy and sour crude oil. It is generally taken as the arithmetic average of the Dubai and Oman Crude grades.

—Courtesy-MCX Training

[MrBill]

A strong close to the crude last night, so it paid to stay long even though the NY session started out weaker and kept selling off from the top end of the range before breaking through to close strong right at the close. Mainly on the back of heating oil in my opinion. Gasoline did not help much.

$this->bbcode_second_pass_quote('', ' ')Heating oil futures rose the most in
two weeks on concern Iranian crude exports may be disrupted as
fuel dealers purchase contracts for the winter season.
Suspension of Iran's uranium enrichment program ``is not
possible,'' Mohammad Saeedi, deputy head of Iran's Atomic Energy
Organization, said today. Iran must halt enrichment by Aug. 31 or
face the threat of UN sanctions. The possible standoff with Iran
comes as fuel distributors are purchasing heating oil futures
contracts to lock in prices for the winter.

[MrBill]

Ongoing tax disputes between the Russian Federation and Volgotanker (who used to have ties to Yukos way back when), and power monopoly UES buying up crude because OGZD/GAZP has cut deliveries for natural gas, diverting them instead for export, may explain partly why Brent has been trading at a premium to WTI this summer, in addition to a geo-risk premium from events in the ME. Never the less for me these things are the kind of background events you only hear about after the fact unless you are actively trading physical product and have boots on the ground to gather intel. Unfortunately, I do not, so I have to read about them one month later....
$this->bbcode_second_pass_quote('', '
')18:23 22Aug2006 RTRS-Russian fuel oil use surges, trimming 2006 exports
- A surge in Russian fuel oil demand has prompted the country's biggest oil product export port, St Petersburg, to cut its 2006 shipment forecast by around a quarter, market sources said on Tuesday.
Heavy buying by power monopoly RAO UES <EESR.MM> was a major factor, traders said. UES said it had increased its fuel oil purchases because of a drop in gas deliveries by Russian gas monopoly <GAZP.MM>.
"RAO UES has been snapping up fuel oil from the market over the past month or so. Domestic prices have become exorbitant," said a trader with an international oil firm.
St Petersburg had expected to match last year's record product loadings of 16 million tonnes, but shipments are unlikely to exceed 11.5-12.5 million tonnes, sources said.
Other factors also contributed to the reduced exports -- shipper Volgotanker halted operations in May due to a tax dispute with the state; shallow water in canals has hampered shipping and there has been a surge in demand for fuel oil to power sugar refinery distillation units.
Shipping sources said they expected the port to handle only 1.5 million tonnes of fuel oil in 2006, down from 3.6 million tonnes in 2005.

DOMESTIC FUEL OIL PRICES RISE
Russian domestic wholesale fuel oil prices, which typically decline during the summer season, rose by 5.8 percent over the past month to 6,466 roubles ($241.4) per tonne as of Aug. 10, Energy Ministry data showed last week.
Unusually, the increase was not the result of a spike on global markets as Russian 3.5-percent-sulphur fuel oil traded flat month-on-month at around $300 per tonne fob in northwest Europe <FO35-F-NWE>.
"We have increased fuel oil purchases because Gazprom has stopped delivering gas above the agreed volumes. We are also stockpiling volumes for the winter season as we always do," said a UES spokeswoman. She declined further comment.
This year Gazprom has moved to maximise more lucrative gas exports while locking in cheap Central Asian imports.
The Energy Ministry said on Tuesday UES's fuel oil stocks were 13.8 percent above normal as of Aug.1. It didn't give other details.
Refined product exports via St Petersburg fell 16 percent to 6.998 million tonnes in January-July.
Deliveries by river fell to 532,000 tonnes from 1.54 million tonnes in January-July partly due to a halt in navigation on the Neva river in July to coincide with the G8 summit.
The most recent data from traders showed that total fuel oil exports from the former Soviet Union from Baltic and Black Sea ports fell by 272,000 tonnes, or 7.2 percent, versus June to 3.49 million tonnes in July.
Flows from the Baltic were 321,000 tonnes, or 11 percent, down from June at 2.60 million tonnes.

[MrBill]

Coal to liquids via cellulosic ethanol?
"many experts in all aspects of Brazil's industry agree that the future of ethanol resides neither in sugar nor corn, but in cellulosic ethanol, a biofuel that theoretically could be extracted from almost anything from switch grass to scrap paper."

$this->bbcode_second_pass_quote('', 'T')o compensate, about 40 to 50 new production plants are to join the existing 340 within the next year. That means more land likely will be cleared for growing sugar cane, exacerbating the already divisive issue of land preservation in Brazil.

Recent studies in the United States have suggested that the entire American corn crop would provide enough fuel to replace only about 12 percent of U.S. gasoline demand. To help plug that potential gap, some in the United States have advocated importing ethanol from Brazil. Though Brazil currently provides about 5 percent of U.S. ethanol, a duty of 54 cents per gallon -- a measure designed to protect American farmers -- makes a large-scale trade relationship unlikely.

[MrBill]

Come on, give it up now. I know most of you hate me. But my predictions of late have been pretty much spot on haven't they? Hmm? Oh well, no worries, I am sure I will regress back to mediocre soon enough! ; - ) Looks like a bit lower here until the 'official response' to Iran from the UN. Blah, blah, blah... A bit of a bounce, but let us take stock tomorrow. Thanks.

[firestarter]

$this->bbcode_second_pass_quote('MrBill', 'C')ome on, give it up now. I know most of you hate me. But my predictions of late have been pretty much spot on haven't they? Hmm? Oh well, no worries, I am sure I will regress back to mediocre soon enough! ; - ) Looks like a bit lower here until the 'official response' to Iran from the UN. Blah, blah, blah... A bit of a bounce, but let us take stock tomorrow. Thanks.

[truecougarblue]

Non-limbaugh-esque ditto.

[MrBill]

$this->bbcode_second_pass_quote('truecougarblue', 'N')on-limbaugh-esque ditto.

[MrBill]

NYMEX testing both ends of the daily range here since they came in an hour ago. At the moment we are near the top end. However, I do not think that means much either? Likely some attention being paid to the Iran story as well as renewed tensions in the Niger Delta. No surprise there either.

$this->bbcode_second_pass_quote('', 'A')dditionally, the shift in focus from gasoline to distillate fuel in the late summer and early fall, followed by a shift back to gasoline in the late winter and early spring, has been a phenomenon growing in importance over the last few years. With limited spare capacity throughout the supply chain, markets don’t have the luxury of looking too far ahead and instead concentrate on the upcoming cycle. As a result, concerns about the future tend to be magnified for those products the market currently has in its sights.

[MrBill]

Well, I got it all wrong yesterday. The only thing I can say in my defense is that I was quick to take my stop loss when the various product markets turned on me, so I did not get hurt badly. Still, a save is not as good as a win! The models turned now. Higher on the back of Iran, Nigeria and tropical storm Ernie or whatever its name is that is still nothing more than a speck in the Atlantic, but enough to convince NYMEX traders to turn tail and run. The hourly and the daily are now pointing north. I guess being a Friday and all that is likely the direction we will close as well? I am bit disappointed. Oh well, no one said it would be easy? ; - )


Here is a nice cheery article on how the oil majors are struggling. When they struggle to replace reserves, it cannot be good for lower pump prices going forward.
$this->bbcode_second_pass_quote('', 'T')he world's largest oil companies are
facing the twin pressures of rising costs and trouble replacing
reserves, oil executives said.
Producers including BP Plc, Royal Dutch Shell Plc and Norsk
Hydro ASA, whose second-quarter profits surged on record oil
prices, all reported a jump in capital spending, a cut in 2006
output, or both.
``Overall, the industry hasn't found too much over the last
year,'' Eivind Reiten, the chief executive officer of Hydro,
Norway's second-largest oil company, said in an interview
yesterday in Stavanger, Norway. ``We have to realize that we are
struggling as an industry to replace the reserves.''
The scramble to take advantage of the price boom means
they're also paying top dollar for equipment such as ultra-deep-
water drilling rigs, which now cost $500,000 a day to hire, more
than double what they cost two years ago, according to BP.
Executives including Rex Tillerson, the chief executive
officer of Exxon Mobil Corp., the world's largest oil company,
said during this week's Offshore Northern Seas conference in
Stavanger, which began Aug. 22, that some cost increases can't be
mitigated.
Exxon is seeing cost pressures ``in particular segments, such
as drilling, the cost of rigs,'' and its response is to drill
wells quicker, Tillerson said.
``In terms of our budget this year, we have indicated that we
expect to have capital spending of $20 billion, which is about a
billion higher than we previously thought,'' Tillerson told
reporters in Stavanger on Aug. 22. ``There is about $200 million
or $300 million of cost pressure growth in that increase that we
have announced.''

Taxes Rising, Too

Higher taxes form part of the increased costs for companies,
Steven Hinchman, Marathon Oil Corp.'s senior vice president for
worldwide production, said in an interview in Stavanger yesterday.
Venezuela, Russia and the U.K. are among nations demanding
more, either by giving state-run companies a bigger share in joint
ventures or simply by raising taxes.
Global proven oil reserves were little changed in 2005,
rising just 0.6 percent to 1.2007 trillion barrels, compared with
a 9 percent gain in 2002, according to BP's annual Statistical
Review of World Energy.
``The general themes that I see in this conference, and in
the industry, are really still the most critical element that any
exploration company will face: we have to be able to acquire and
have access to the opportunity in order to grow profitably,''
Marathon's Hinchman said. ``The other issue that's in a lot of
discussion is around rising costs.''

Forecasts Falling

Several companies boosted spending or cut production
forecasts when they reported second-quarter earnings last month,
notably BP, which now expects capital spending of $15.5 billion to
$16 billion this year, up from its previous $15 billion forecast.
London-based BP lowered its 2006 production forecast of 4.1
million to 4.2 million barrels a day by 110,000 barrels a day to
account for the effect of high prices on overseas production-
sharing contracts. Chevron Corp., the second-largest U.S. oil
company, also said its production would slow in the second half
because of such contracts, which give companies fewer barrels when
prices are high.
Shell last month lowered its annual production forecast to
3.4 million barrels a day from about 3.6 million barrels a day,
because of disruptions in Nigeria. The company, based in The
Hague, kept its companywide budget unchanged at $19 billion. Shell
is spending $2 billion of that on exploration, which is more than
any other company, as it tries to make up for a 2004 reduction in
its reserve estimates.
Rising industry costs mean that ``$2 billion doesn't get you
what it used to,'' David Lawrence, Shell's executive vice
president for exploration, said today in Stavanger.

Fewer Big Cats

The number of ``big cat'' prospects -- those capable of
delivering at least 100 million barrels of oil -- that Shell can
explore this year may be affected by a shortage of rigs, he said.
``The main thing that we struggle with, as does the rest of
the industry, is that people are holding onto their rigs as
they're drilling appraisal projects, and under fairly favorable
terms, so sometimes we don't get the rigs as early as we would
want to,'' Lawrence said.
Repsol YPF SA, Europe's fifth-largest oil company, which like
Shell is struggling to replace flagging reserves, said last month
it will spend 28 billion euros in the five years to 2009, 32
percent more than previously forecast.
Companies in Norway, the world's third-largest oil exporter,
have also cut supply estimates. Statoil ASA, Norway's largest,
last month lowered its target for this year by as much as 2
percent, down from an earlier estimate of 1.2 million barrels a
day, because of extensive maintenance and lower supply from
maturing North Sea fields.
Norsk Hydro, the second-largest Norwegian producer, said in
June output would be about 5 percent lower this year, averaging
585,000 barrels a day, because of unplanned shutdowns and
mechanical problems.
``In general, we feel the very heated market for supply and
services, which certainly makes us delay some projects,'' Hydro's
Reiten said.

[cube]

wow it sure does get quiet when Mr.Bill isn't around.

I guess I'll toss in my 2 cents.

I may be going out on a limb here but I think the Aug 31. US imposed deadline for Iran is going to be all bark and no bite...just like all the previous ones since the beginning of this year. At the rate things are going it wouldn't surprise me if Iran develops a nuclear fussion reactor before the US does "something"

This downtrend in crude is lasting much longer then I had expected. I thought it would be going sideways by now. Guess I was wrong.

anyways until next week...

[joewp]

I'm certainly terrible at predicting direction of markets, but we're sitting on the 200 day moving average right now. I think it's waiting for an excuse to bounce back up, perhaps to $80?

[MrBill]

To be honest, just hacked-off with this market at the moment. I was short at the high on Friday night, got yacking with my colleague before heading out the door, and then instead of monitoring my position from home I decided what the heck, just close it and forget about it for the weekend. Duh. Short at $73.95 in the WTI at the 21-day moving average resistance point and now it is $69.95, but by the time I came in on Monday and saw how far it had fallen, my interest to chase the market was nil.

So this week I have been doing a lot of research into power, coal and emissions trading. Just do not have my head screwed on right to actively trade at the moment. So sorry for the silence. As soon as I get back into the market and develop a feel again I will start posting my ideas.

Here is an interesting article on ethanol use in the USA.

$this->bbcode_second_pass_quote('', ' ') Plant-based fuels such as ethanol are
too scarce to make a dent in U.S. demand for crude oil from Saudi
Arabia, Nigeria and other overseas producers, said BP Plc Vice
President Carol Battershell.
Supplies of corn-based ethanol, a gasoline additive, and
diesel made from soybeans are growing too slowly to offset the
need to import more crude to satisfy growing fuel demand in the
U.S., the world's biggest gasoline market, Battershell, strategy
and policy director in BP's alternative energy business, said
today at an energy conference in West Lafayette, Indiana.
``Biofuels are limited in their production scale because
there is competition for their feedstocks from the food
industry,'' Battershell told a gathering of government officials,
academics and energy industry executives today at Purdue
University.
President George Bush has championed ethanol and other so-
called biofuels as the solution to U.S. reliance on oil from
unstable regions such as the Persian Gulf and West Africa. Last
year, Bush gave ethanol and biodiesel makers their biggest
government boost in a quarter century by signing into law a
requirement that refiners almost double use of plant-based fuels
by 2012.
Attempts to lift the tariff that discourages imports of
sugar-based ethanol from Brazil have so far been blocked by trade
groups that represent U.S. corn farmers, Senator Richard Lugar,
an Indiana Republican, told reporters at the conference.
``Farm interests don't want the competition from sugar
ethanol,'' Lugar said. Brazil is the world's No. 2 ethanol
producer, after the U.S.

Corn Demand

About 20 percent of the U.S. corn crop to be harvested this
year will be distilled into ethanol, up from 14 percent last
year, the Agriculture Department said in an Aug. 11 report.
Ethanol was the third-biggest market for U.S. corn in 2005, after
livestock feed and exports.
Livestock such as cattle and hogs consume 56 percent of the
U.S. corn crop.
Imported petroleum fed 65 percent of U.S. demand last year,
up from 50 percent a decade earlier and 32 percent in 1985,
Energy Department figures showed. By comparison, ethanol, the
most plentiful plant-based motor fuel, accounted for 3 percent of
the U.S. gasoline supply in 2005.
U.S. refiners have increased oil imports in the past 20
years because of slumping output from fields in some of the
oldest crude-producing regions, such as Texas, Oklahoma,
California and the shallow waters of the Gulf of Mexico.

Supply Disruptions

Oil prices rose 15 percent this year, touching a record
$78.40 on July 14 on the New York Mercantile Exchange, amid
surging demand in China, India and the U.S., and supply
disruptions in Nigeria, the Gulf of Mexico and Alaska. Crude has
more than tripled in the past five years.
Ethanol prices jumped 43 percent this year in the U.S. as
demand for the additive to replace a competing fuel component
expanded faster than production. Ethanol is added to gasoline in
concentrations of about 10 percent in most of the U.S. markets
where it's used.
BP is the world's No. 3 maker of motor fuels such as
gasoline, after Irving, Texas-based Exxon Mobil Corp. and Royal
Dutch Shell Plc, based in The Hague.

[TheGiantWave]

$this->bbcode_second_pass_quote('joewp', 'I')'m certainly terrible at predicting direction of markets, but we're sitting on the 200 day moving average right now. I think it's waiting for an excuse to bounce back up, perhaps to $80?

[MrBill]

Crude got smacked pretty hard yesterday on the DOE numbers after it failed to mount any kind of a successful rally off the lows earlier in the day. Too much fundamental momentum pushing against the complex, where refining margins are low and falling, while stories persist that some of the $100 billion of hedge fund money that has been thrown at energy is now being withdrawn in search of higher returns elsewhere. I think certainly unless we see some hurricane damage and/or sanctions against Iran in September that less investment will enter the sector come the beginning of Q4'06 when most funds will be open for new money.
$this->bbcode_second_pass_quote('', 'O')il prices were hit hard early in the day by an unexpected rise in the nation's crude inventories, then bounced back as traders paid closer attention to the United Nation's Aug. 31 deadline for Iran to suspend its nuclear program, a demand Tehran has rejected.
The Energy Department reported crude supplies rose 2.4 million barrels to 332.8 million for the week ended Aug. 25. Energy traders had expected a decline. Gasoline stocks rose for a second consecutive week, up 400,000 barrels to 206.2 million. Distillate supplies climbed 1.3 million barrels to 136.8 million.
At the same time, refining margins are declining across most regions of the country. According to a report from Bear Stearns, falling gasoline prices as the summer driving season comes to a close and rising supplies have pushed refining margins 5.6% lower on the East Coast to $7.74 a barrel while Gulf Coast margins plunged 20.6% to $8.20 and fell 17.6% on the West Coast to $18.13 a barrel, their lowest level since early March.
This is unwelcome news for refiners, especially the independents.
The near-term outlook for natural gas has also dimmed somewhat, with gas prices knocked off recent highs as Tropical Storm Ernesto fizzled over Florida, leaving Gulf of Mexico fields unscathed. Analysts caution, however, against writing off the sector too early since the hurricane season is only half over.

[TheGiantWave]

Maybe some more sabre rattling from Iran, maybe not... can't help but think the passing of this deadlie will prove a dissappointment for anyone expecting the impact to come today.

Sure Iran won't back down... they've come this far, why stop now - but don't expect the lumbering dinosaur that is the UN and associated strings attached to move very quickly given the mix of interests held by the veto carriers in the ME.

Range bound for me for now. In the absence of anything new I can't see it under 6700 can't see it over 7200 so trade that for now.

[MrBill]

Here are ML take on commodity and energy markets...
$this->bbcode_second_pass_quote('', 'C')ommodities in full super-cycle swing
A chain of supply bottlenecks, a strong cyclical upswing in demand and relatively low inventories have set the stage for the rally in commodity prices of the past five years. More recently, prices of commodities such as copper, zinc or gasoline have spiked, just like dry freight did in 2004, partly reflecting the very low price elasticity of demand for most commodities. Going forward, we expect supply to remain tight and the global economy to expand further albeit at a slower pace, suggesting commodity prices will stay high and volatile.

Stay neutral on energy, look for relative value among fuels
The steep contango in the front months of the NYMEX WTI crude oil market is unlikely to disappear anytime soon, and we expect prices to trend modestly lower next year. Given our spot price and term structure outlook, we believe investors will be better off by investing in indices that roll farther out on the forward curve such as the MLCX, or by seeking alpha strategies such as the ML Oil RIS. Still, we remain positive on light refined products. Transportation fuel prices will likely stay high due to strong demand and refining bottlenecks, and spikes could occur again in petroleum product markets. In addition, we believe that oil & gas prices will converge over the long-run, and we would focus on coal as the obvious alternative to high hydrocarbon prices.
Metals offer positive rolls but limited upside from here
In our view, maintaining a long position in zinc or backwardated metals markets, such as copper and nickel, is worth considering at this point in the cycle. We believe that demand will remain well supported until 2H2007, and that unexpected increases in supply are unlikely. Particularly, limited zinc concentrate output could drive prices higher. On the other side, we would caution against aluminium index investments on growing supplies and negative roll yields.

Agriculture supported by biofuels, hurt by contango
With light petroleum products trading at prices of more than $85 a barrel, we believe that biofuels such as ethanol and biodiesel will continue to receive more attention. A significant amount of biofuel processing plants are scheduled to come on stream, lending support to the Grains and Oilseeds MLCX Sub-Index.

[TheGiantWave]

Bloomberg Article on Peak Oil - Made me smile.

Natgas looks broken... beware those who think $6 is a cheap - because it won't be without the aid of some serious storm action. Some big numbers still for this winterr, how sustainable are they?

Crude... looks like it has done the pre-long weekend bounce on a Thursday this time. Don't think there will be anything to get excited about over the weekend and the UN don't meet for another week to even sit down and talk about Iran....let alone come to a decision on the course of sanction led action. Scale seller from 7100 I think... would have to close over 7217 to get me worried. Under 6800 I would buy some and hold for about a week.

... but then I wouldn't advocate trading flat price crude in this mkt anyhow.

[cube]

*blink blink*

Can this be true? I actually made an accurate economic forecast?

I said earlier the Aug 31st deadline was going to be "all bark and no bite" and sure enough much like the ending of bad B-rated movie the drama sure was lackluster.

Ever heard the story about the boy who cried wolf? This Iran drama kinda reminds me of that. You guys may remember in the beginning of this year oil prices practically did a kangaroo jump of $6 in 7 days on the mere mentioning of the word "Iran" in the news. Yesterday with the USA impossed deadline what did we get? A bunny hop of 25 cents followed by a drop of $1 today.

I guess all this Iran drama is starting to lose it's effect. Of course that could all change if there was some form of "action" to back up the talk but when is that going to happen?

just my 2 cents

[truecougarblue]

Closed my long on CDE today and went short TOL again.

This housing bubble may just put peak off a few years. My view on the down cycle is tansitioning from amusement to shock to tepidation. I know many, many people who are headed into uncharted financial waters.