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Tuesday, October 05, 2010

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Nota Bene: Retail gasoline prices rose Weather forecast courtesy of

for the third time in the last four Commodity Weather Group
weeks. Per the EIA, as of Monday,
October 04th, prices in the U.S. rose by
3.8 cents or 1.4% to $2.732 a gallon.
The premium to a year ago increased
by 289 bps to 10.7% or 26.4 cents.
Meanwhile, off-highway diesel prices
hit the $3 threshold for the first time
since May. Prices increased by 4.9
cents or 1.7% to $3.00. The premium
to one year ago increased by 273 bps
to 16.2% or 41.8 cents!
CRUDE AWAKENINGS
Oil supply concerns?
TRADING BIAS DAILY
(See omnium-gatherum p.5)
WTI: BEARISH a/o Oct 04 …S- 80.33 R- 82.61
TRADING THE TECHNICALS
☺ BRN: BULLISH a/o Sep 12 …S- 82.58 R- 83.98
A ride higher… but a bumpy one.
NG: BEARISH a/o Aug 06 …S- 3.654 R- 3.8
RB: BEARISH a/o Oct 04 …S- 206.49 R- 212.17 Yesterday saw sideways trading in the NYMEX WTI contract,
HO: BEARISH a/o Oct 04 …S- 225.65 R- 231.29 which rallied almost four dollars over the last two days of last
week but settled yesterday eleven cents lower. Are the bulls
TRADING BIAS WEEKLY down for the count or simply catching their breath?

☺ WTI: BULLISH a/o Aug 29 …S- 78.5 R- 84.66 Keep in mind that we are approaching a key technical level. In
☺ BRN: BULLISH a/o Sep 12 …S- 80.56 R- 86.94 the report dated September 14th, when WTI settled at 76.80,
NG: BEARISH a/o Aug 01 …S- 3.577 R- 4.017
we wrote:
RB: NEUTRAL a/o Aug 22 …S- 200.63 R- 216.59
HO: NEUTRAL a/o Aug 29 …S- 218.9 R- 239.86
“The control extension based on this latest low of 70.76 gives
us three key levels: the 61.8% (where prices got sticky in
TRADING BIAS MONTHLY
February) of 80.25, the 76.4% (where prices failed in May) of
WTI: NEUTRAL a/o Dec 2009…S-71.64 R-84.70 82.50 and the 100.00% (where prices failed in June) of 86.12.
BRN: NEUTRAL a/o Oct 2009…S-71.15 R-84.03
NG: NEUTRAL a/o Feb 2010…S-3.947 R-5.723 Which one of these levels will be key? The 61.8% is within
RB: BEARISH a/o Aug 2010…S-186.22.70 R-229.54 twenty five cents of the 200 day moving average of 80.50
HO: BEARISH a/o Aug 2010…S-185.99 R-218.99 (Nov), so this could attract attention. The 100% extension is
within a dollar of the rolling contract’s annual high of 87.15,
ENERGY PRICES WERE WEAK YESTERDAY… the natural which could create a ceiling. However, we are most interested
gas bears broke below the 3.800 barrier and kept in the 76.4% retrace of 82.50.
falling. Meanwhile WTI likely saw profit taking after
last week’s stellar gains and prices settled the day Yesterday the October contract broke through its 50 day
lower despite much better than expected pending moving average of 76.76, traders will likely be looking at the
home sales data. As expected, the RBOB crack 100 day MA of 78.47. Given the bullish economic data, a
strengthened while the heating oil crack fell, possibly
weaker dollar and a recovery in the front month, the bulls
due to weak factory orders. Today is light on releases,
might just make it. The most risk averse should take profit off
so keep an eye on equities and the Eurodollar.
Tuesday, October 05, 2010 contact@schorkreport.com © 2010 THE SCHORK GROUP, INC Page 1
Chart of the day: NYMEX WTI Point and Figure Chart

the table at 80.25 but we believe the majority (including the upper Stoller Average Range Channels (STARC) band
us) will probably begin to get cold feet by 82.50.” of 83.06.

Yesterday WTI prices peaked at an intra-day high of The short term REX Oscillator began to drop on Friday
82.38 and were weak for the rest of the day – so are we after two weeks of gains – according to Technical Analysis
getting cold feet? It turns out that we are – the economic guru Paul Ciana, the REX “turning negative in a bull
recovery is growing at the same (glacial) pace that it was market indicates a reversal to the downside”.
last month, earnings season has yet to begin and supplies
of crude and products remain ample. Thus, as the bias Assuming that a short term correction takes place, how
box on p.1 demonstrates, we have switched over to daily low could it go? In March, we saw significant support
bearish on all the NYMEX liquids as of last night. around the 100 day MA, which currently stands at 77.54.
Furthermore, a range retrace from the previous local
As demonstrated by today’s CotD, WTI has failed between high/low leads to a 61.8% retrace of 79.17 and a 50.0%
82.00 and 83.00 five times in the past year. The most retrace of 77.70. Put simply, we expect a worst case
significant of these was the most recent, when prices fell scenario of heavy support around the 78.00 barrier.
12.21 from an intra-day high of 82.97 on August 04th to
an intra-day low of 70.76 on August 25th. Less significant What explains strength at this level? And why have we
were the corrections which took place on March 12th and kept our weekly bias bullish? Wall Street’s permabull
18th, when prices dropped just 4.03 and 4.52 state-of-mind plays a large factor, as does the onset of
respectively. refinery maintenance season. From a technical
standpoint, our trending indicators remain bullish - the
Technical traders love patterns, and we believe a similar Erlanger Trend Direction crossed in to a green bar above
correction may be due. Fortunately for the bulls, we the center line (signifying uptrend) yesterday, while
believe it will be closer to the drops seen in March than in Bloomberg’s trender lines are positive and sloping
August. upwards. The Ichimoku chart shows prices above the
cloud, and a lagging span well above reference prices. If
The short term oscillators are flashing red – the Relative you had gotten long on our September 14th
Strength Index (RSI) crossed in to over-bought territory recommendation, it likely seems very tempting to take
(70+) on Thursday and remains at a high 75.73. Prices profits at this point, put a less-overheated trade on (such
have also decoupled from the upper Bollinger band of as the RBOB crack) and revisit crude once a pull-back has
80.17 and we are approaching, but have not broken, taken place.

Tuesday, October 05, 2010 contact@schorkreport.com © 2010 THE SCHORK GROUP, INC Page 2
NATURAL GAS NAT-GAS X Open 3.752 High 3.788 Low 3.686 Close 3.727 Chng -0.07

Well they finally went and did it. After two consecutive 5.5 NYMEX NG November '10 Daily 
days of testing the 3.800 barrier (and several more in the 5.3
previous week), the bears finally settled below the 3.800 5.1
barrier, and with gusto. Prices broke past our 3.719 4.9
inflection point to crater at a 3.686 low print. The
4.7
Erlanger Trend Direction (ETD), shown below, switched
4.5
from a green bar below the center line (a rally) to a red
4.3
bar, which signifies a downward trend. We are in
4.1
uncharted waters from here on down – will the bears
make the annual low of 3.610 their next target? They 3.9

probably already have. 3.7


3.5

4‐Aug
9‐Aug

2‐Sep
8‐Sep
14‐Jul
19‐Jul
22‐Jul
27‐Jul
30‐Jul
6‐Jul
9‐Jul

4‐Oct
12‐Aug
17‐Aug
20‐Aug
25‐Aug
30‐Aug

13‐Sep
16‐Sep
21‐Sep
24‐Sep
29‐Sep
Dail y Bia s: BE ARISH

As for today, strength above yesterday's 76.4% retrace of


3.764 opens the door to our 3.800 inflection high. Above
here the bulls will potentially run towards our 3.872
intra-day. Then again, weakness below yesterday's 3.686
low print leads to our 3.654 inflection low. Below here
we look for offers to hit support at our 3.582 intra-day.

OIL WTI X Open 81.68 High 82.38 Low 80.77 Close 81.47 Chng -0.11

WTI was flat yesterday after a spate of mixed macro- 85 NYMEX CL November '10 Daily
84
economic results. Pending home sales came in 4.3% 83
82
higher MoM, almost double the 2.5% expected by analysts. 81
On the other hand, and released at the same 10:00 80
79
timeslot, factory orders dropped by 0.5% in August 78
77
compared to the 0.4% drop expected by analysts and the 76
0.1% gain seen in July. Prices failed to cross our upper or 75
74
lower inflection points of 82.77 and 80.39 respectively, 73
though when it comes to WTI, such calm rarely lasts. The 72
71
0.13% drop was in between the 0.35% gain for RBOB and 70
69
the 0.40% drop seen in heating oil. 68
4‐Aug
9‐Aug

2‐Sep
8‐Sep
14‐Jul
19‐Jul
22‐Jul
27‐Jul
30‐Jul
6‐Jul
9‐Jul

4‐Oct
12‐Aug
17‐Aug
20‐Aug
25‐Aug
30‐Aug

13‐Sep
16‐Sep
21‐Sep
24‐Sep
29‐Sep

Dail y Bia s: BE ARISH

As far as today goes, weakness below yesterday's 80.77


low print alerts to our 80.33 inflection low. Below here
we will look towards our 79.19 intra-day. On the other
hand, gains above yesterday's 76.4% retrace of 82.00
clear a path to our 82.61 inflection high. Through here
the bulls could run to (and in to resistance at) our 83.75
intra-day high.

Tuesday, October 05, 2010 contact@schorkreport.com © 2010 THE SCHORK GROUP, INC Page 3
ICE Brent Brent X Open 83.81 High 84.41 Low 82.90 Close 83.28 Chng -0.47

Prices in London were certainly more volatile than WTI, with a 84 Brent CO November '10 Daily 
0.56% drop on the day. The bulls seemed to be in charge 82
but peaked at 84.41, just three cents below our 84.44 80
inflection high. This likely set off a reversal and prices
78
crashed past our 83.06 inflection low to crater at 82.90. This
76
lead to a contraction in the inter-market spread
74
As far as today goes, strength above yesterday's pivot high of 72
83.66 opens the door to our 83.98 inflection point. If
70
crossed we will look for bids to our 84.68 intra-day. On the
68
other hand, a drop below yesterday's 82.90 low print alerts

2‐Aug
5‐Aug

3‐Sep
8‐Sep
12‐Jul
15‐Jul
20‐Jul
23‐Jul
28‐Jul
7‐Jul

4‐Oct
10‐Aug
13‐Aug
18‐Aug
23‐Aug
26‐Aug
31‐Aug

13‐Sep
16‐Sep
21‐Sep
24‐Sep
29‐Sep
momentum to our 82.58 inflection low. Below here we will
look for offers towards our 81.88 intra-day.
Daily Bias: BULLI SH

LIGHT ENDS RBOB X Open 209.25 High 212.15 Low 207.59 Close 209.33 Chng +0.72

In yesterday’s opening paragraph we stated “the latest CFTC 220 NYMEX XB November '10 Daily
data suggests strength in the RBOB crack and weakness in 215
the HO crack.”. RBOB did not fail to perform, decoupling from 210
the other liquids to rise 0.35%, as compared to the 0.40% 205
drop seen in HO. The bulls even broke past our 211.52 200
inflection high to peak at 212.15. The ETD for RBOB crossed
195
in to a green bar above the center line suggesting an uptrend
190
– not surprising given how cheap RBOB is in relative terms.
185

As far as today goes, weakness below yesterday's 207.59 low 180

print alerts to our 206.49 inflection low. Below here we look 175
4‐Aug
9‐Aug

2‐Sep
8‐Sep
14‐Jul
19‐Jul
22‐Jul
27‐Jul
30‐Jul
6‐Jul
9‐Jul

4‐Oct
12‐Aug
17‐Aug
20‐Aug
25‐Aug
30‐Aug

13‐Sep
16‐Sep
21‐Sep
24‐Sep
29‐Sep
to our 203.65 intra-day. On the other hand, a rebound above
yesterday's 76.4% retrace of 211.07 opens the door to our
212.17 upper inflection point. Above here the bulls should bid
Dail y Bia s: BE ARISH
towards our 215.01 intra-day high.

MIDDLE DISTILLATES HEATING OIL X Open 229.50 High 231.33 Low 227.43 Close 228.47 Chng -0.91

235 NYMEX HO November '10 Daily 


Have investors fallen out of love with heating oil? Prices seem
230
to be running out of steam close to the same point in April.
April 30th saw a settle of 228.85 (they gapped to 234.51 the 225

next day but that seems like a short covering anomaly) – by 220
May 6th they were testing 205.68. Yesterday prices settled at 215
an eerily close 228.47 – we don’t have to wait for Halloween to 210
feel spooked. Interestingly, the REX oscillator crossed below
205
the signal line on Friday, and we will look for further weakness.
200
195
As far as today goes, strength above yesterday's 229.81 high
point builds a bridge to our 231.29 upper inflection point. Once 190
4‐Aug
9‐Aug

2‐Sep
8‐Sep
14‐Jul
19‐Jul
22‐Jul
27‐Jul
30‐Jul
6‐Jul
9‐Jul

4‐Oct
12‐Aug
17‐Aug
20‐Aug
25‐Aug
30‐Aug

13‐Sep
16‐Sep
21‐Sep
24‐Sep
29‐Sep

crossed, the bulls will run towards our 234.11 intra-day high.
Then again, weakness below yesterday's 227.43 low point
signals momentum to our 225.65 inflection low. Below here we Dail y Bia s: BE ARISH
will look for offers down to our 222.83 intra-day low.

Tuesday, October 05, 2010 contact@schorkreport.com © 2010 THE SCHORK GROUP, INC Page 4
ICE GASOIL
730 ICE Gasoil October '10 Daily
Despite the weakness in NYMEX heating oil and ICE Brent,
Gasoil decoupled to rise 1.01% on the day, with a high print
710
of 730.50 less than a cent above our 729.75 inflection high.
Demand for distillates may have been fuelled by the UK’s 690
PMI construction number, which beat analyst expectations
to rise for the first time in three months. The Gasoil crack 670
widened in turn to 13.935 as of writing.
650

ICE Brent‐Gasoil Crack Spread  630
14.5
14
13.5 610

2‐Aug
5‐Aug

3‐Sep
8‐Sep
12‐Jul
15‐Jul
20‐Jul
23‐Jul
28‐Jul
7‐Jul

4‐Oct
10‐Aug
13‐Aug
18‐Aug
23‐Aug
26‐Aug
31‐Aug

13‐Sep
16‐Sep
21‐Sep
24‐Sep
29‐Sep
13
12.5
12
11.5
11
10.5 Da ily Bi as: NEUTRAL
10
21‐Sep 22‐Sep 23‐Sep 24‐Sep 27‐Sep 28‐Sep 29‐Sep 30‐Sep 1‐Oct 4‐Oct
towards our 706.75 intra-day. On the other hand,
continued strength through yesterday's 730.50 high
As for today, offers through yesterday's 23.6% retrace of
print clears a path towards our 737.25 upper
720.95 alert to follow through momentum towards our
inflection-point. Above here we will look for bids
716.75 inflection. We will look for weakness below here
towards our 747.25 intra-day.

OMNIUM-GATHERUM

All inbound and outbound traffic to the Houston Ship the winter goes, supplies of heating oil (№2 > 5×10-4) in
Channel remains idle as repairs to a downed power line the East, the largest (by far) heating market in the U.S.,
are completed. On Sunday morning the U.S. Coast Guard were 13% above their 5-year average. In other words, we
halted traffic to the epicenter of the U.S. refining complex are swimming in seasonal supplies.
after a barge struck a highline electrical tower in
Baytown. The channel is estimated to stay closed until Yet, the curve on forward prices continues to flatten. That
this evening. usually only happens when supply concerns arise. But,
then again, these are not usual times. For example, in
In the meantime the discount on sour crudes in the Gulf usual times mom-and-pop investors do not own 22 MMbbls
(Mars and Poseidon) narrowed to WTI and the contango of WTI crude oil.
on the NYMEX forward curve narrowed by another 19
cents. Since peaking two weeks ago the discount on In this vein the crude oil exchange-traded-fund (USO) is set
prompt futures has been sliced in half, from $1.45 on to begin its roll tomorrow. Thus, in between today and
September 21st to 73 cents as of last night. Monday we are going to see a lot of selling in the front of
the Board and a lot of buying in the back. As such, the
We suspect that the premium to GoM sours will move table is set for further contraction in the contango.
back out after the Channel reopens. After all, we are Therefore, if we see it we will understand why. If we don’t,
talking about a two day disruption to the flow of oil, then we do not want to be long crude oil.
during turnarounds. To wit, refinery utilization in PADD
III (GoM) dropped by 360 bps to 86.3% per the latest
weekly update from the DOE. Besides, there are 434
MMbbls of sour crude sitting down in the Gulf in the SPR…
57 days worth of GoM refining capacity cover.

Furthermore, overall U.S. supplies of crude oil ended the


month of July at a 20-year high, 355.1 MMbbls. As far as
4
Tuesday, October 05, 2010 contact@schorkreport.com © 2010 THE SCHORK GROUP, INC Page 5
BIOFUELS

Monday, October 04th, 2010 - According to the DOE 1.71 billion bushels. That report placed stocks 23%
report for the week ended September 24th, discretionary higher than the USDA’s estimate from earlier in the
gasoline blending (conventional + ethanol) rose for the month.
first time in five weeks as implied gasoline demand surged
by a seasonally large 536 Mbbl/d (+6%). Production of As far as this week goes, we will look for knock-on
conventional gasoline with ethanol rose by 5.2% to a corrective momentum through 459.75, towards our
four-week high of 4.92 MMbbl/d. Reformulated gasoline 450.00 intra-week inflection-point. Below here we will
production with ethanol increased by 2.7% to 2.98 look for offers towards our 426.80 weekly low. On the
MMbbl/d. Discretionary blending accounted for 53.1% of other hand, a rebound through 472.00 clears a path
the entire gasoline blending pool over the last four weeks. towards our 482.00 upper inflection-point. We will look
for strength above here towards our 508.25 weekly top.
For a second straight week production of ethanol fell by a
relatively large amount, 2.9% according to the DOE. Finally, after hitting six life-of-contract highs in ten
Over the last four weeks output averaged 0.856 MMbbl/d, sessions, October sugar futures in New York expired with
with a 0.1% surplus to the previous four weeks. Supplies a resounding thump, 18.61, down 6.2% from the record
fell by 2.1% or 336 Mbbls to 17.16 MMbbls. close of September 28th. The technical weakness in this
market was exacerbated by a report out of Brazil, the
Meanwhile, ethanol futures in Chicago took a header for a world’s largest sugar exporter, showing a 31% rise in
second straight week. As such, the bullish trend that shipments in September to a record 3.35 million metric
began in early August appears to have run its course. tons.
Last Friday the contract for November delivery finished at
$1.842, the lowest weekly close since August and down Thus, as is the case in ethanol and corn, momentum
9½% from the September 20th high. in sugar appears to have turned and entered into a
bearish trend. As far as this week goes in the spot
As far as the Ag feedstocks go, Chicago corn futures contract for March 2011 delivery, offers through 22.92
crashed back below the $5 benchmark and fell by nearly clear a path towards our 22.28 intra-week inflection-point.
11%, from 521.75 on September 24th to 465.75 one week We will look for weakness below here towards our 20.77
later. As such, the bull market in corn also appears to weekly low. Otherwise, a rebound through 23.73 cautions
have run its course… likely explaining the bearish trend for a retrace towards our 24.41 intra-week high. Above
that has developed in ethanol. The selloff in corn was here we will look for bids towards our 26.18 intra-week
triggered by last Thursday’s USDA quarterly report on top.
total corn stocks which showed inventories rising 2% to

WEEKLY OUTLOOK (October 4th to 8th)

Henry Hub… weakness below the week ending September 3rd's 3.693 low print alerts to our 3.577 inflection low.
Below here we will look for offers to our 3.358 intra-week. On the other hand, a rebound above last week's 38.2%
retrace of 3.940 opens the door to our 4.017 inflection high. Once crossed, the bulls should run towards our 4.236
intra-week high. WTI… strength above August 4th's 82.97 high print should send the bulls towards our 84.66
inflection high. Above here they will likely hit resistance at our 87.74 intra-week high. On the other hand, a
correction below last week's 79.61 pivot point leads to our 78.50 inflection low. Below here we look for offers to our
75.42 intra-week. Brent… strength above April 5th's 86.09 high print opens the door to our 86.94 inflection high.
Above here the bulls will run to (and in to resistance at) our 90.14 intra-week high. On the other hand, a drop below
last week's 81.72 pivot point alerts to our 80.56 inflection low. Below here the floor falls through to our 77.36 intra-
week low. RBOB… strength above the week ending August 13th's 214.33 high print clears the path to our 216.59
inflection high. If the bulls break through here they will hit resistance around our 224.56 intra-week high. On the
other hand, a correction below last week's 203.32 pivot point alerts to our 200.63 inflection low. Below here we look
for offers to our 192.66 intra-week low. Heating Oil… strength above May 3rd's 235.74 high print opens the door
to our 239.86 inflection high. Above here we look for bids to our 250.33 intra-week. Then again, a correction past
last week's 222.86 pivot point alerts to our 218.90 inflection point. Below here the bears should claw to our 208.43
intra-week low.

Tuesday, October 05, 2010 contact@schorkreport.com © 2010 THE SCHORK GROUP, INC Page 6
SCORECARD

BUY NATURAL GAS SELL NATURAL GAS

Prices have bounced off the 3.800 level Production rebound (per EIA-14 Survey).
as in early spring. Spare capacity (nonconventional deferred
Summer may be warmer than expected. production).
U.S. manufacturing improving, pushing Hurricane Season was a no-show (7.9 Bcf
up demand for electricity. actually shut in, expectations were of 57 Bcf)
Policy in Washington (if T. Boones gets Residential natural gas use locked in to a
his way) will steer demand growth downward trend since 2006.
disproportionally towards gas. Shale plays will fundamentally alter the
amount of domestic supply available.

BUY OIL

SELL OIL
Bulls have shown their ability to push
prices above 80.00 in the short term.
Traders are looking for less volatile, safer
U.S. dollar may have peaked in June.
assets such as bonds.
U.S. recession officially over in June
Bulls have proven again and again that they
2009.
are unable to break above mid-80 levels.

CRUDE OIL BULL BEAR NA NAT-GAS BULL BEAR NA


API 7 EIA 7
DOE 7 Weather 7
PAD 1 & 2 7 Fuel Switching 7
Imports 7 Rig Count 7
Production 7 Imports - LNG 7
NYMEX Cracks 7 Imports - Canada 7
OPEC 7 Exports - Mexico 7
ARB into USAC 7 Nuclear Capacity 7
ARB into USGC 7 Hydro Capacity 7
Transportation 7 Transportation 7
Momentum 7 Momentum 7
Economy 7 Economy 7
Interest Rates 7 Interest Rates 7
Outages 7 Outages 7
Season 7 Season 7
Market Sentiment 7 Market Sentiment 7
COT 7 COT 7
Total 3 8 6 6 7 4

A note about the Ibis: The Ibis folklore has it that other birds look to the Ibis for leadership. The Ibis
uses its instinct to detect danger. It is the last sign of wildlife to take shelter before a hurricane hits,
giving warning that danger is imminent. As the storm passes the Ibis is the first to reappear, a sign the
clear skies are approaching.

Tuesday, October 05, 2010 contact@schorkreport.com © 2010 THE SCHORK GROUP, INC Page 7