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Energy Brief for Dec 9

Price Overview

The petroleum complex held up surprisingly well despite a bearish DOE report which showed substantially larger builds in crude and product inventories than had been expected. The report indicated that crude stocks increased by 15.2 mb compared to expectations for a draw of 1.4 mb. Although initial selling was seen in response to the release, it failed to garner follow through. The failure to respond to the report attracted nervous short covering and stop loss buying.

The large build in crude inventories was traced to a sizable increase in imports to over 6.4 mb compared to the 4 week average near 2.8, and a drop in crude exports to 1.8 mb from a four week average over 3 mb. Refinery utilization rose to 79.9 percent from 78.2 the prior week. The news also prompted an initial bearish reaction as both gasoline and distillate showed a larger than expected builds. Gasoline inventories increased by 4.2 mb and distillate jumped by 5.2 compared to expectations for a 2.3 and 1.4 mb increase respectively. Total commercial stocks of crude and products rose by 19.9 mb to 1,373.9 mb against 1,275.7 a year ago. Disappearance levels were stable at 18.5 mb, with propane and other oils showing the best gains while distillate fell .4 mb to 3.4 and gasoline was off .4 mb to 7.6.

Natural Gas

Prices have staged a minor recovery since Monday’s selloff, but not before they probed to another new low yesterday at 2.368 basis January. The support was garnered from forecast revisions over the last two days that began to show signs of increased heating demand in the two week outlooks, with model agreement this morning leading to an intraday bounce of over 10 cents. With the market at oversold levels, profit taking surfaced as 2.50 was briefly exceeded. Support was also provided by the large storage draw expected tomorrow. Trade is looking for a decrease of 82 bcf, which is bullish in comparison to the 5 year avearge draw of 61. With storage levels 7% above average for this time of year the cushion is ample, and it will likely take a much larger than expected draw to precipitate any substantial bounce after the release. With solid LNG flows and contracting production offering underlying support to the market, prices remain dictated by the most unpridictable variable of all-weather. With the poor close near the days lows, any decrease in HDD expectations likely sends us to a quick test of the 2.30 level on the January contract. Further signs of a cooling trend, ideally aided by a solid stock draw tomorrow, would likely not find substantial resistance until the 2.60 area due to the oversold technical status of the market.

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Charts Courtesy of DTN Prophet X, EIA, Reuters

Futures and options trading involve significant risk of loss and may not be suitable for everyone.  Therefore, carefully consider whether such trading is suitable for you in light of your financial condition.  The information and comments contained herein is provided by ADMIS and in no way should be construed to be information provided by ADM.  The author of this report did not have a financial interest in any of the contracts discussed in this report at the time the report was prepared.  The information provided is designed to assist in your analysis and evaluation of the futures and options markets.  However, any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to ADMIS. Copyright ADM Investor Services, Inc.

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