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IRA EPSTEIN & COMPANY
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312-207-1800(November 23, 1999) ENERGY COMPLEX: CRUDE OIL--Last Tuesday, the American Petroleum Institute (API) data showed a whopping 4.95-million-barrel decline, while the U.S. Department of Energy (DOE) data reported a 4.0-million-barrel drop. Inventories of distillates fell 932,000 barrels and 2.0 million barrel, according to API and DOE reports. The market attributed the gains to continued bullish sentiment amid a range of supportive new developments, notably the latest U.S. oil stock data reporting of a surprising drop of 4.949 million barrels in gasoline and of 932,000 barrels in distillates.
Product prices were supported further by news that Hovensa confirmed its 450,000-bpd refinery on the island of St. Croix being shut down ahead of Hurricane Lenny. Also bullish was news that Shell had declared another force majeure on loadings of Nigerian Forcados crude until December 9th. Perceptions are that the colder weather in northwest Europe is leading to increased demand.
Supply is widely expected to tighten as winter in the Northern Hemisphere approaches and as world oil producers maintain their supply curbs. Early in the week, major oil producer Texaco cut its refinery runs by 10% at its 180,000 barrel-per-day Pembroke refinery in the UK and its 399,000 barrel-per-day Nerefco refinery in Rotterdam, which is co-owned by BP Amoco. The cuts were made in response to poor refining margins, accentuated by recent increases in the price of crude oil relative to refined products.
Later in the week, NYMEX energy futures surged in volatile trade, helped by strong overnight trade and news that Orion refining has decided to shut its refinery operations at the end of this month at its Norco, La., refinery. The refinery comprised of mostly a crude and coker unit are expected to resume service in March or April when the new 130,000-bpd fluid catalytic cracking unit is expected to start up. Meanwhile, Saudi Arabian Oil minister stated that possibilities were still open to OPEC and non-OPEC members when deciding whether to extend oil cuts set to expire Mar 31. As the inventories were retreating, further improvement was deemed possible.
January crude oil broke above the channel support line crossing at 26.66 today, providing clues of heading higher for the next possible target of 27.67. If bears come in and successfully break the market down below the 26.14, than it's possible at that time to target the 24.77 level.
RECOMMENDATION--Until the market breaks down, consider purchasing December crude oil at 26.26 and putting a sell stop loss at 25.12.
Benny Tjahjono