God save the queen

SFOT's interpretation of the DOE data is that it was a non event in most part, except for the middle distillate draw where heating oil stocks were taken down. That should some support for the specific product, especially if we do get some sort of cold snap in the next few weeks, both in Nymex heat and European Gasoil. Note that distillate forward days cover seems to have peaked, and refinery run cut has contributed to this more than an increase in demand. Within the middle distillate pool sits the higher sulfur diesel, and the inventories have actually increased by a large chunk. That is a function of much much lower demand globally. Having said that, we are seeing very low cracks in heating oil in the US. Temperature appears to be warmer than normal over the next few days, which should keep cracks depressed. However, with stocks forecasted to continue its decline as refiners continue to cut run due to low margins, it is worth to be long some nearby cracks if it continues its slide lower.

US Distillate days forward cover

Jan09 Heat crack on Nymex

Gold continues to be strong and although it does not imply strong WTI, the recent high correlation will mean downside in WTI is fairly limited. The BOE action this morning has taken out some stops in cable and EUR is being dragged up against the USD. In turn, oil is trading above 80.00 in Dec09. Does this relationship sound familiar to all? We will continue to see this type of correlation until year end, until more risks are put on, until passive investment money starts to come through (which SFOT think is happening yet very slowly). SFOT is sitting long as he belongs to the dovish camp post FOMC, but only very slightly so. He shall leave the FED watching to expert bloggers on Macroman and other pros while taking cue from other asset classes as to where WTI can head directionally. He sees resistance at 81.90 which is the high of this contract this year and endeavours to take some profit close to the level, if he is right.