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IRA EPSTEIN & COMPANY
223 West Jackson, 7th Floor, Chicago, Illinois
(August 13, 1997) ENERGY COMPLEX: SOME HIGHLIGHTS ON THE ENERGY MARKETS–The energy markets have been trading side ways, in a narrow range for last several days. I think it is consolidating to find a direction.
–The markets stabilized and tried to rally up on short covering at the lower end of its trading range on some reports that the catalytic cracker at Exxon's Baytown, Texas refinery might shut down for the next few weeks for unscheduled maintenance. Also, rumors that Tosco's Bayway, N.J. catalytic cracker will not return on line by August 17th as previously expected. These events have helped to keep prices higher.
–The implied distillate demand, as released in the latest API report was pegged at 3.55 million barrels versus 3.31 million barrels, while the daily gasoline demand was 8.25 million barrels versus 8.35 million barrels previous weeks. This report sounds a bit bearish.
–The UN received more than 12 approved contracts from Iraq for sale of Iraqi oil. This is more than 69 million barrels and while on the surface looks bearish, it appears at this point in time that the resumption of Iraqi oil shipments has been factored into the market and is not expected to have a strong negative effect on prices.
–China suggested they will cut some imports to avoid oversupply. According to the GNI Research Report, global production has increased and oil prices could go down.
–After the market closed yesterday, the API announced in that U.S. crude oil stocks rose 2,749,000 barrels, U.S. gasoline stocks fell 863,000 barrels, U.S. distillates stocks fell 745,000 barrels and U.S. refinery operating rate was down 2.1% to 95.0%.
–Most analysts contacted by FWN were calling for a draw in crude oil stocks of around 1 to 2 million barrels, a draw in gasoline stocks around 2 to 3.5 million barrels, and a build in distillate stocks of around 1 to 2 million barrels. The smaller than expected draw in gasoline stocks was apparently less bearish and the market rallied sharply today, closing at 6608 in September gasoline, 2015 in September crude oil and 5604 in September heating oil.
TECHNICALS–Technically, resistance lies in September crude oil, between 2080 and 2100, in September heating oil between 5790 to 5850 and in September gasoline between 6450 and 6550. The September gasoline has broken out to the upside and closed at 6608 today.
RECOMMENDATIONS–Last week, I suggested to trade energy markets from short side, the market did come down to the lower end of its trading range, found support and bounced back up. I am again recommending buying puts on October or November gasoline or crude oil on this rally. I believe the gasoline has broken out to the upside, but I am recommending fading this rally. I would advise traders to cover short positions to take profits close to the following support levels–September crude oil between 1990 and 2000, September gasoline between 6180 to 6200 and September heating oil 5440 to 5490.
The October chart shows the 18- and 4- day moving average of closing prices along with Stochastic indicators.
Kanu Rana
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