May 1, 2006 DISTILLATES AND DIESEL UPDATE NYMEX heating oil futures settled higher Friday amid concerns about world supply disruptions given ongoing militant activity in Nigeria that is cutting into supplies from the fifth biggest source of US oil imports. In addition, news that the International Atomic Energy Agency reported that Iran was enriching uranium in defiance of the UN Security Council kept the market supported with Iran being OPEC's second-largest oil producer. NYMEX May heating oil futures, that expired Friday, settled up $0.0272 at $2.0129 after trading in a range from $1.9755 to $2.0300. NYMEX June heating oil futures settled up $0.0193 at $2.0129 after trading in a range from $1.9821 to $2.0420. Fundamental Indicators: The Energy Information Administration (EIA) report for the week ending Apr. 21 showed distillate stocks increased by 1.0 million barrels in the latest week counter to pre-report expectations for a 1.5-million-barrel decline. At 115.6 million, distillate fuel inventories were 11.1 million above a year ago (when compared with monthly EIA data) and remain above the upper end of the average range for this time of year (see following chart for comparisons with weekly data). 145,000 US Weekly Distillate Stocks 135,000 125,000 115,000 105,000 95,000 85,000 75,000 Out of the 1.0-milion-barrel increase in distillates, high sulfur distillate (heating oil) stocks were up 600,000 barrels while low sulfur distillate (diesel fuel) fuel stocks were up 400,000 barrels. When using monthly EIA data to compare with a year ago, heating oil stocks are now 5.7 million barrels above a year ago up from the 5.6-million-barrel surplus we saw a week ago (see following charts of heating oil and diesel stocks with comparisons with weekly data). 775 Ridge Lake Boulevard, Suite 400 ~ Memphis, Tennessee 38120-9403 ~ Telephone 901.202.4600 ~ Fax 901.766.4402 http://www.informaecon.com
May 1, 2006 Page 2 65,000 US Weekly Heating Oil Stocks 55,000 45,000 35,000 25,000 85,000 US Weekly Diesel Fuel Stocks 80,000 75,000 70,000 65,000 60,000 2004 2005 2006 5-year average 55,000 50,000 The decrease in distillate inventories came as distillate imports were up in the latest week. For the week ending Apr. 21, the EIA reported that distillate fuel imports averaged 379,000 bpd, up 254,000 bpd from the week prior (see following chart showing weekly distillate imports with comparisons with weekly data).
May 1, 2006 Page 3 800 US Weekly Distillate Imports 600 2004 2005 2006 5-year average 400 200 0 Distillate production was up 193,000 bpd from the week prior to 3.794 million barrels (see following chart that shows comparisons with weekly EIA data). The increase in production was aided by the fact that refinery utilization increased by 2.0 percentage points to 88.2 of operable capacity. Out of the total, heating oil production was up 44,000 bpd while diesel fuel production was up 149,000 bpd. 4800 US Weekly Distillate Production 4400 4000 3600 ` 3200 2004 2005 2006 5 Year Average 2800 The increase in distillate stocks was also aided by the fact that distillate demand that was down 96,000 barrels from the week prior, averaging 3.899 million bpd (see following chart that shows weekly distillate disappearance with comparisons with weekly data). Over the last four weeks, distillate fuel demand has averaged over 4.051 million bpd, which is 2.8 percent below the same four-week period a year ago.
May 1, 2006 Page 4 5,000 US Weekly Distillate Demand Source:DOE-EIA 4,500 4,000 3,500 3,000 2004 2005 2006 5 year average Heating oil inventories are still in comfortable shape at 5.7 million barrels over a year ago. And as we move into May, overall normal temperature levels seasonally rise, further cutting into heating fuel needs. Technical Indicators: The 20-day moving average for June futures was higher at $1.9914 and the 40- day moving average was higher at $1.8929. To the downside, near-term support in June futures is next expected near $1.9660. If this level is penetrated, further buying would be expected near $1.9230 and then near $1.8790. Thereafter, the next level of support would be expected near the Mar. 21 low of $1.7370. To the upside, near-term resistance is pegged at $2.0250. If this level is breached and the market trades over the Apr. 24 high of $2.1100, the next level of selling would be targeted near $2.1900. Thereafter, long-term resistance would be near $2.2700. NYMEX Heating Oil Futures Close: Apr. 28, 2006 Dollars per Gallon Contract High Low Close Previous Close Change Est. Volume May 06 2.0300 1.9755 2.0129 1.9857 0.0272 10,457 Jun 06 2.0420 1.9821 2.0129 1.9936 0.0193 33,510 Jul 06 2.0630 2.0040 2.0379 2.0151 0.0228 9,121 Aug 06 2.0760 2.0260 2.0599 2.0366 0.0233 3,146 Sep 06 2.1000 2.0510 2.0844 2.0611 0.0233 1,929 Oct 06 2.1400 2.0800 2.1134 2.0896 0.0238 622 Nov 06 2.1740 2.1210 2.1489 2.1246 0.0243 218 Dec 06 2.2050 2.1510 2.1839 2.1591 0.0248 1,154 Jan 07 2.2300 2.1990 2.2069 2.1816 0.0253 309 Feb 07 2.2300 2.2025 2.2094 2.1841 0.0253 62 Mar 07 2.2050 2.1600 2.1844 2.1591 0.0253 161 Apr 07 2.1500 2.1250 2.1284 2.1031 0.0253 147
May 1, 2006 Page 5 2.2000 NYMEX Heating Oil June 06 2.1000 20 per. Mov. Avg. (SETTLE) 40 per. Mov. Avg. (SETTLE) dollars per gallon 2.0000 1.9000 1.8000 1.7000 1.6000 7/19/2005 8/2/2005 8/16/2005 8/30/2005 9/13/2005 9/27/2005 10/11/2005 10/25/2005 11/8/2005 11/22/2005 12/6/2005 12/20/2005 1/3/2006 1/17/2006 1/31/2006 2/14/2006 2/28/2006 3/14/2006 3/28/2006 4/11/2006 4/25/2006 5/9/2006 5/23/2006 Price Comments: The market likely will maintain at least some risk premium given ongoing nervousness about world supply disruptions. In addition, if gasoline and crude oil push back higher, it will be difficult for heating oil to divorce itself from these markets. However, by itself, our bias for heating oil is that it will trade sideways to lower this spring and summer before rebounding once again this fall. UNLEADED GASOLINE UPDATE NYMEX gasoline futures settled higher on Friday amid expectations and then verification later that the International Atomic Energy Agency reported that Iran, which had enriched uranium, was in defiance of the UN Security Council. The UN Security Council is to meet this week to discuss the next step which could mean punitive measures against Iran. The possibility that this could incite Tehran to cut its oil exports kept the market on edge Friday. May gasoline futures, that expired Friday, settled up $0.0202 at $2.0921 after trading in a range from $2.0535 to $2.1300. NYMEX June gasoline futures settled up $0.0337 at $2.0892 after trading in a range from $2.0357 to $2.1050. Fundamental Indicators: There is just one refinery in the Gulf of Mexico region that has not yet returned to production following last fall's hurricanes. It is Murphy Oil's 120,000-bpd refinery in Meraux, Louisiana. Among those recently in restart mode has been ConocoPhillips' 247,000-bpd Alliance refinery in Belle Chasse, Louisiana, and BP's giant 437,000-bpd refinery in Texas City, Texas. The Energy Information Administration (EIA) report for the week ending Apr. 21 showed that gasoline stocks declined by 1.9 million barrels in the latest week. This was less than pre-report expectations for a 2.6-million decline. Gasoline inventories, at 200.6 million, are now 12.0 million barrels below a year ago (when compared against monthly EAI data) and are now below the lower end of the average range of the last five years (see following chart that shows comparisons with weekly data).
May 1, 2006 Page 6 235,000 US Weekly Total Gasoline Stocks 225,000 215,000 205,000 195,000 185,000 175,000 The week-over-week decrease in gasoline inventories came despite the fact that gasoline imports increased in the latest week. The EIA reported that gasoline imports (including finished gasoline and gasoline blending components) averaged 1.338 million bpd in the week ending Apr. 21, up 431,000 barrels from the week prior and the fourth largest weekly import volume on record (see following chart that shows comparisons with weekly data). 1,600 US Weekly Gasoline Imports SOURCE: DOE-EIA 1,400 per day 1,200 1,000 800 600 400 At the same time, the EIA reported that gasoline demand was down in the latest week, possibly reflecting some consumers backing away from the lofty prices at the pump. The EIA reported that gasoline demand was down 88,000 bpd in the latest week to 9.012 million bpd. Over the last four weeks, gasoline demand has averaged over 9.1 million bpd, which was 0.3 percent above the same four-week period last year (see following chart with comparisons with weekly data).
May 1, 2006 Page 7 10,000 US Weekly Gasoline Demand per day 9,600 9,200 8,800 8,400 8,000 The EIA reported that gasoline production increased in the latest week. With refinery utilization up 2.0 percentage points in the latest week as some refineries returned from maintenance programs, gasoline production increased by 375,000 bpd to 8.470 million bpd for the week ending Apr. 21 (see following chart showing comparisons with weekly data). 9,500 US Weekly Gasoline Production per day 9,000 8,500 8,000 7,500 2004 2005 2006 5-year average 7,000 Gasoline days cover nudged slightly lower in the week ending Apr. 21 to 22.5 (see following chart). Recall that gasoline days forward cover is the week prior's gasoline stocks (in this case, 202.482 million barrels for the week ending Apr. 14) divided by the latest week's demand (in this case, 9.012 million bpd for the week ending Apr. 21).
May 1, 2006 Page 8 30.00 Gasoline Days Cover Declined to 22.5 in Latest Week 29.00 28.00 Annual Averages 27.00 26.00 25.00 24.00 23.00 22.00 21.00 20.00 Jan-98 May-98 Sep-98 Jan-99 May-99 Sep-99 Jan-00 May-00 Sep-00 Jan-01 May-01 Sep-01 Jan-02 May-02 Sep-02 Jan-03 May-03 Sep-03 Jan-04 May-04 Days of Forward Cover Sep-04 Jan-05 May-05 Sep-05 Jan-06 May-06 Technical Indicators: The 20-day moving average for June futures was higher at $2.0675 while the 40- day moving average was higher at $1.9311. To the downside, near-term support in June futures is next expected near $2.0400. If this level is breached, the next level of buying would be expected near $1.9820. If this level is breached, further buying would be expected near $1.9240 before heading for the Mar. 23 low of $1.7344. To the upside, the next level of resistance would be $2.1125 followed by further resistance near $2.1350 and $2.1580. Thereafter, if strength continues past the Apr. 19 high of $2.2300, the next area of selling would be $2.3490 and then $2.4050. NYMEX Unleaded Gasoline Futures Close: Apr. 28, 2006 Dollars per Gallon Contract High Low Close Previous Close Change Est. Volume May 06 2.1300 2.0535 2.0921 2.0719 0.0202 16,690 Jun 06 2.1050 2.0357 2.0892 2.0555 0.0337 27,846 Jul 06 2.0950 2.0285 2.0875 2.0475 0.0400 7,593 Aug 06 2.0725 2.0220 2.0760 2.0350 0.0410 897 Sep 06 2.0475 2.0150 2.0595 2.0190 0.0405 749 Oct 06 1.9550 1.9250 1.9645 1.9255 0.0390 234 Nov 06 1.9200 1.9000 1.9310 1.8925 0.0385 56 Dec 06 1.9000 1.9000 1.9145 1.8765 0.0380 30 Jan 07 0.0000 0.0000 1.9205 1.8825 0.0380 0
May 1, 2006 Page 9 2.3000 2.2000 NYMEX Gasoline June 06 20 per. Mov. Avg. (SETTLE) 40 per. Mov. Avg. (SETTLE) 2.1000 dollars per gallon 2.0000 1.9000 1.8000 1.7000 1.6000 1.5000 7/19/2005 8/2/2005 8/16/2005 8/30/2005 9/13/2005 9/27/2005 10/11/2005 10/25/2005 11/8/2005 11/22/2005 12/6/2005 12/20/2005 1/3/2006 1/17/2006 1/31/2006 2/14/2006 2/28/2006 3/14/2006 3/28/2006 4/11/2006 4/25/2006 5/9/2006 5/23/2006 Price Comments: The strong uptrend in gasoline futures witnessed over the last couple of months may be in the process of turning sideways as the market is rethinking its bullish outlook that gasoline supplies will tighten further as we head into the summer driving season. Even though US stocks have dropped sharply since mid March, the normal seasonal pattern is for stocks to increase from May 1 through mid July. A return to something more like a normal, seasonal pattern is supported by more refineries returning from maintenance programs and as two of the last three refineries still down from last fall's hurricanes are in the restart. In addition, with retail gasoline prices approaching $3.00 in many areas, some consumers are backing away from the pumps with gasoline demand in the latest week declining slightly to just over 9 million bpd. If stocks do increase as expected, this should push prices lower unless ongoing militant activity in Nigeria and the continued standoff between the West and Iran over Tehran's continued uranium enrichment work again drive crude oil prices higher. Also remember that imports mostly have been running well above a year ago; if imports slip and the cut in supplies is not offset with increased domestic production, we could set the market up for another leg higher. And all of this is coming as we head into both the summer driving season and the hurricane season (which officially starts June. 1). Overall, our price bias is shifting toward a more neutral stance over the next few weeks but with a substantial amount of caution about sudden upside price moves under current fundamental uncertainty. CRUDE OIL PRICE UPDATE NYMEX crude oil futures settled higher Friday with support from news that the International Atomic Energy Agency said that Iran, which had enriched uranium, was in defiance of the UN Security Council. NYMEX June crude oil futures settled up $0.91 at $71.88 after trading in a range from $70.49 to $72.65. Fundamental Indicators: The International Atomic Energy Agency (IAEA) on Friday said that Iran, which has enriched uranium, was in defiance of the UN Security Council. Meanwhile, Iranian President Mahmoud Ahmadinejad offered no hints of conciliation, vowing that "no one" could make his country give up nuclear technology and that the country "won't give a damn" about any UN resolutions concerning its nuclear program. Iran is OPEC's second-largest oil producer and has argued that it seeks the technology only to generate power; however, the West believes Tehran's uranium enrichment work is aimed at creating weapons. Iran has said that it does not intend to halt oil exports in a political battle with the West. But the market fears that supplies will be disrupted if the dispute escalates. The UN Security Council is to
May 1, 2006 Page 10 meet this week to start a process that could result in punitive measures against Iran. The possibility that this could incite Tehran to cut its oil exports has the market on edge. The Energy Information Administration (EIA) report for the week ending Apr. 21 showed that crude oil inventories (excluding those in the Strategic Petroleum Reserve) fell by 200,000 barrels near pre-report expectations for a 100,000-barrel decline. At 345.0 million barrels, the year-over-year surplus in crude oil stocks is to now down to 18.4 million (down from 21.3 million the week prior) when compared with monthly EIA data. However, crude stocks remain well above the upper end of the average for this time of year (see following chart of comparisons with weekly data). 350,000 340,000 330,000 US Weekly Crude Oil Stocks Source : DOE-EIA 320,000 310,000 300,000 290,000 280,000 270,000 260,000 250,000 In the latest week, the EIA reported that US crude oil imports averaged 9.9 million bpd in the week ending Apr. 21, up 199,000 from the week prior. Crude oil imports the last four weeks have averaged nearly 9.8 million bpd, which is a decrease of 417,000 bpd from the same four-week period a year ago (see following chart showing comparisons with weekly data). 11,500 US Weekly Crude Oil Imports Source : DOE-EIA 11,000 per day 10,500 10,000 9,500 9,000 8,500 8,000 Chart data based on unrevised weekly EIA data The EIA also reported that refinery inputs were up 343,000 bpd from the week prior to over 15.1 million bpd. The EIA reported that refineries increased their operable capacity in the week ending Apr. 21 to 88.2
May 1, 2006 Page 11 percent of capacity, up 2.0 percentage points from the week prior and 1 percentage point above prereport expectations (see following chart showing comparisons with weekly data). 100 Weekly Refinery Utilization Source : DOE-EIA percent of operable capacity 95 90 85 80 75 70 65 Chart data based on unrevised weekly EIA data The EIA also reported that crude oil production inched up 2,000 bpd in the latest week to 5.127 million (see following chart that shows comparisons with weekly data). 6200 US Weekly Crude Oil Production 5800 per day 5400 5000 4600 4200 3800 3400 As of Apr. 19, the US Minerals Management Service (MMS) reported that 22.3 percent (334,019 bpd) of a total 1.5 million bpd of crude oil production in the Gulf of Mexico still was shut in due to Hurricane Katrina and Hurricane Rita. This was down slightly from the 340,436 bpd that had been shut in as of Apr. 5. The MMS reported that cumulative shut in oil production for Aug. 26 through Apr. 19 was 148.898 million barrels, equivalent to 27.2 percent of the annual production in the Gulf of Mexico of 547.5 million barrels. Out of the 819 manned platforms in the Gulf, there are still 87 (or 10.6 percent) evacuated as of Apr. 19; out of the 134 rigs, there are none evacuated. The MMS will publish its next update Wednesday, May 5. Technical Indicators: The 20-day moving average for June futures was higher at $71.16 while the 40- day moving average was higher at $68.07. If weakness is resumed, the next level of support in June futures appears to be near $70.50. If this level is breached, further buying would be expected near $68.90 and then $67.40. Thereafter, longer-term support would be expected first near the Mar. 21 low of $62.40
May 1, 2006 Page 12 and then Feb. 15 low of $61.00. To the upside, near-term resistance lies first near $72.40 and then $73.00 followed by further selling near $73.50. If these levels are penetrated, the next level of resistance would be the Apr. 21 and Apr. 24 high of $75.35. NYMEX Crude Oil Futures Close: Apr. 28, 2006 Dollars per Barrel Contract High Low Close Previous Close Change Est. Volume Jun 06 72.65 70.49 71.88 70.97 0.91 155,575 Jul 06 74.00 72.08 73.50 72.47 1.03 95,498 Aug 06 74.70 72.95 74.25 73.27 0.98 17,778 Sep 06 75.15 73.52 74.75 73.81 0.94 12,551 Oct 06 75.04 73.89 75.08 74.16 0.92 3,322 Nov 06 75.10 74.16 75.30 74.39 0.91 1,955 Dec 06 75.75 74.23 75.42 74.53 0.89 28,907 Jan 07 75.70 75.00 75.47 74.60 0.87 1,396 Feb 07 0.00 0.00 75.47 74.62 0.85 132 Mar 07 75.10 75.10 75.43 74.60 0.83 526 Apr 07 0.00 0.00 75.35 74.55 0.80 978 May 07 0.00 0.00 75.26 74.49 0.77 475 76.00 72.00 NYMEX Crude Oil June 06 20 per. Mov. Avg. (SETTLE) 40 per. Mov. Avg. (SETTLE) dollars per barrel 68.00 64.00 60.00 56.00 7/19/2005 8/2/2005 8/16/2005 8/30/2005 9/13/2005 9/27/2005 10/11/2005 10/25/2005 11/8/2005 11/22/2005 12/6/2005 12/20/2005 1/3/2006 1/17/2006 1/31/2006 2/14/2006 2/28/2006 3/14/2006 3/28/2006 4/11/2006 4/25/2006 5/9/2006 5/23/2006 Price Comments: Even though US crude oil supplies remain ample, they have slipped the last few weeks, now sitting at 18.4 million barrels over a year ago. Also, ongoing militant activity in Nigeria and unease over Iran, particularly with Tehran's insistence on continuing its uranium enrichment work, will keep the market jittery about the potential for world supply disruptions. In addition, we soon will be heading into both the summer driving season and the summer hurricane season (that officially begins June 1), which will keep some amount of risk premium in the market. Taken together, we believe it will be difficult for this market to break significantly out of a recent low $60s to mid $70s range. This copyrighted material is intended for the use of clients of Informa Economics, Inc. and FTR Associates, only and may not be reproduced or electronically transmitted to other companies or individuals, whole or in part, without
May 1, 2006 Page 13 the prior written permission of Informa Economics, Inc. and FTR Associates. The information contained herein is believed to be reliable and the views expressed within this document reflect judgments at this time and are subject to change without notice. Informa Economics, Inc. and FTR Associates, do not guarantee that the information contained herein is accurate or complete and it should not be relied upon as such.