CAMERON HANOVER

[DAILY PETROSPECTIVE] November 8, 2010

Energy Prices Settlements

Heating Oil Crude Oil

Month High Low Settle Change Volume Month High Low Settle Change Volume
DEC 240.10 236.72 239.77 1.29 30638 DEC 87.49 85.96 87.06 0.21 270240
JAN 242.31 239.13 241.98 1.24 13155 JAN 88.13 86.60 87.71 0.23 91151
FEB 243.28 240.50 243.31 1.17 5348 FEB 88.57 87.13 88.22 0.25 27897
MAR 243.93 240.98 243.69 1.14 4608 MAR 89.02 87.62 88.69 0.27 16526
APR 242.25 240.34 242.84 1.12 2035 APR 89.11 88.01 89.08 0.29 8241
MAY 242.07 240.05 242.34 1.05 1924 MAY 89.36 88.38 89.43 0.31 8902
JUN 242.87 239.65 242.26 1.03 4508 JUN 89.85 88.65 89.70 0.33 15830
JUL 242.12 240.76 243.19 1.01 527 JUL 89.87 89.05 89.93 0.33 4220
AUG 243.44 241.68 244.30 1.00 285 AUG 89.79 89.26 90.12 0.33 3336
SEP 244.07 244.07 245.85 1.00 64 SEP 89.91 89.40 90.30 0.33 2983
OCT --- --- 247.71 1.00 78 OCT 89.79 89.79 90.49 0.33 1646
NOV --- --- 249.70 1.02 0 NOV 90.22 89.87 90.69 0.33 1603

Unleaded Gasoline Natural Gas

Month High Low Settle Change Volume Month High Low Settle Change Volume
DEC 219.38 215.28 217.85 -0.15 31384 DEC 4.097 3.937 4.088 0.151 126399
JAN 219.82 216.25 218.70 -0.24 20229 JAN 4.295 4.170 4.279 0.103 61379
FEB 222.22 218.47 220.79 -0.26 8058 FEB 4.292 4.174 4.285 0.105 24080
MAR 223.20 220.91 223.08 -0.28 5091 MAR 4.255 4.144 4.252 0.105 26031
APR 234.95 232.89 234.94 -0.25 3415 APR 4.216 4.113 4.219 0.107 19263
MAY 236.32 233.86 236.09 -0.16 1987 MAY 4.242 4.148 4.250 0.111 8736
JUN 237.96 234.45 236.75 -0.06 1886 JUN 4.288 4.197 4.294 0.109 1590
JUL 235.36 234.60 236.68 0.01 158 JUL 4.344 4.259 4.350 0.107 1177
AUG --- --- 236.28 0.11 0 AUG 4.382 4.302 4.392 0.106 3768
SEP --- --- 235.37 0.17 0 SEP 4.398 4.310 4.409 0.103 1833
OCT --- --- 225.82 0.36 0 OCT 4.475 4.386 4.485 0.099 10278
NOV --- --- 225.01 0.51 0 NOV 4.686 4.633 4.699 0.088 2665

Early Evening Review for Tuesday

The oil complex was mixed to higher on Monday, with crude oil
and heating oil prices higher and gasoline prices lower. Crude oil
prices broke Friday’s high of $87.22 with a surge up to $87.49
before the stronger dollar pressed oil traders to take profits.
Crude oil settled over $87.00, but came nine cents shy of settled
at $87.15, which is the number on the charts worth watching. It
was a new two-year high, but prices just could not hold the day’s
highs. Nonetheless, it was a strong close and if and when the
dollar weakens again, we would expect to see prices able to
sustain one of their next moves higher. Crude is on the doorstep
of finishing over $87.15, which would be unequivocally bullish.
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The dollar continued Friday’s rally on Sunday night, and the majority of the move was over before
midnight. The greenback managed to print fresh highs before 11 AM, but that was the extent of the
movement higher. Prices eased off the day’s highs, and worked sideways into the close of trading on
Monday afternoon.
The DJIA also had trouble building on last
week’s impressive gains, but it did nothing to
suggest that the uptrend has been negated
or broken. It ended Monday’s session down
37.24 to 11,406.84. It was a minor decline,
though, and the breakout seen last week is
still very much intact. The trend is still very
clearly pointed higher.
So, what do we have here, now?
Everything that happened last week was
bullish, starting with the election, which has
led observers to speculate on position limits
and financial regulation. If position limits are allowed to die, we had a taste last week of how many
contracts can be added in a very brief period of time. On Wednesday and Thursday, more than 88,000
new contracts were added. The FOMC meeting ended with $600 billion in quantitative easing, or the
Federal Reserve buying paper it doesn’t really want or need, to juice the economy. The stock market
surged to new highs, as did oil prices, cotton and sugar prices and precious metals prices. The dollar hit
new lows for 2010.
All of this begs the question: Why have prices of the euro and equities fallen since Friday’s
unemployment figures were released? Does anyone really believe, for even a minute, that the Fed is
suddenly going to change its course on QE2? That seems like an odd bet to be making, especially since
everyone from President Obama on down the line agrees that unemployment remains too high. One
decent report does not suddenly change the need for the Fed to stimulate the economy. If the Fed had
any doubts that it was
following the correct course DOE Expectations
with QE2, it could – and Category Dow Jones Bloomberg Reuters
would – have rescheduled its Crude Oil up 0.800 up 1.750 up 1.400 mln bbls
FOMC meeting for a few days Distillate dn 2.100 dn 2.100 dn 1.800
later. Gasoline dn 1.000 dn 1.000 dn 1.000
It is possible that we have Utilization dn 0.3% unchanged up 0.1%
another case of “buy the
rumor, sell the fact.” That axiom has worked in countless markets, and it may be at work, here … but it
is unlikely to have the final say. We might see a corrective move (like the one we have had in equities
and the euro) lasting a few days, but commodities prices seem especially unwilling to wait here. Gold
made new highs on Monday along with crude oil, which reached its highest intraday figure for the year
during the day.
In other news, the Saudi Arabian position on prices took a strange turn, with the range of $70-$80
recited as the kingdom’s preferred range. It knows that higher prices keep marginal wells in production,
and prices at higher levels make almost every form of alternative energy feasible. It stopped short of
saying it would flood markets if prices were to break $90 or $100 a barrel, so it may be premature to try
to ascertain its level of hostility to higher prices. Nevertheless, it was an interesting wrinkle.

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Technical Views

Crude oil prices traded up to $87.49 on Monday, but they could not finish above $87.15, which is the key figure in the equation.
Prices are into Bollinger Band resistance, they are overbought and overextended, but the trend is clearly pointed higher. If we had
to pick one over the other, we would pick the trend.

The DJIA finished the day down 37.24 to 11,406.84 on Monday. The index is still well above its breakout point and we should
expect to see the next big move on the upside.

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