Oil Market Firming Ahead of Inventory Reports (USO, OIL, DBO, UCO, DBE, USL, DTO, SCO, DNO, OLO, BNO, SZO, UHN, OIH)

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December 29, 2010 1:48pm NYSE:BNO NYSE:DBE

The Christmas holiday has pushed back the release of the U.S. Energy Department’s weekly oil and fuel inventory report to Thursday. Traders, however, are pushing domestic crude prices back


 above the $91-a-barrel level in anticipation of a bullish industry report on crude oil supplies.

After closing the Tuesday floor session at $91.49, the February delivery of West Texas Intermediate crude dipped to $90.80 in overnight trading, but bounced back as the time for this morning’s opening bell approached.

The American Petroleum Institute is due to release its estimates of oil and fuel stocks after the close of floor trading today.  According to the Energy Department’s definitive figures, domestic crude inventories have been drawn down by 27.4 million barrels, or 7.5 percent, since peaking at 368.2 million barrels in October.

U.S. Commercial Crude Oil Inventories vs. Quarterly Contango

Crude oil’s been buoyant this week, advancing 3.0 percent as of Tuesday on fresh buying. Laggard product prices, however, have cut deeply into refining margins. Gasoline’s risen 1.8 percent on the week while heating oil’s essentially unchanged. Gasoline producers saw their margins shaved two percent points to 11.9 percent this week while refining runs emphasizing heavier distillates were trimmed to 12.6 percent, 2.4 points less than last week’s gross.

The heating oil/gasoline spread lost 4.5 cents a gallon this week. The ethanol crush was also squeezed 1.7 cents a bushel on a spike in input corn prices. The 30-day correlation of corn and ethanol prices weakened to 76.7 percent over the week. Gasoline’s premium over ethanol prices ticked up to 20.4 cents a gallon from last week’s 19.7-cent level.

This week, average daily volume for NYMEX WTI futures slumped 48.6 percent to 347,117 contracts while open interest climbed 46,241 contracts to 1.396 million.

WTI widened its discount to North Sea Brent crude by 35 cents a barrel this week as the domestic market’s contango narrowed. A three-month NYMEX roll now costs $1.77 a barrels vs. $1.94 last week.

Technical picture

The crude oil market is currently bullish with the nearby contract well supported by its 10-day moving average at $89.65.

Crude has cleared a critical hurdle with its recent closes above the $90.41 level — a 50 percent retracement of the commodity’s 2008 plunge. Bulls now have their eyes set at the $103.83 level in the intermediate term.

Today, support for the February contract should be expected at $90.78 and $90.30 while selling is likely to be encountered at $91.70 and $92.14.

ETF Daily News Notes Some Oil Related ETFs: United States Oil Fund (NYSE:USO), iPath S&P GSCI Crude Oil (NYSE:OIL), PowerShares DB Oil (NYSE:DBO), ProShares Ultra DJ-UBS Crude (NYSE:UCO), PowerShares DB Energy (NYSE:DBE), United States 12 Month Oil (NYSE:USL), PowerShares DB Crude Oil Dble (NYSE:DTO),  ProShares UltraShort DJ-UBS (NYSE:SCO), United States Short Oil (NYSE:DNO), PowerShares DB Crude Oil Long (NYSE:OLO), United States Brent Oil (NYSE:BNO), PowerShares DB Crude Oil Short (NYSE:SZO), United States Heating Oil (NYSE:UHN), Oil Services HOLDRs (NYSE:OIH).

Nearby WTI Crude Oil

Written by Brad Zigler From Hard Assets Investor

HardAssetsInvestor.com (HAI) is a research-oriented Web site devoted to sharing ideas about hard assets investing. The site has been developed as an educational resource for both individual and institutional investors interested in learning more about commodity equities, commodity futures and gold (the three major components of the hard assets marketplace). The site will focus on hard assets investing without endorsing or recommending any particular investment product.

HARDASSETSINVESTOR.com

This article is being distributed courtesy of www.HardAssetsInvestor.com. Copyright HardAssetsInvestor.com All Rights Reserved.

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