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CRUDE OIL MARKET FUNDAMENTALS: April crude oil prices rallied during the early morning hours but fell short of a test of yesterday’s high ($106.48). Since then, a dose of disappointing economic data and mounting concerns whether Greece can execute new reforms and austerity measures has tempered the outside market tone. February Chinese Purchasing Managers’ data showed the fourth straight month of contraction and European service sector data unexpectedly shrank in January, and that has injected a level of doubt over global recovery prospects. Probably more concerning to the crude oil market was the rather sharp drop in Chinese export orders in the wake of the Euro zone debt crisis. Meanwhile, it appears that the crude oil market continues to sport a level of support from supply disruptions fears out of the Middle East. While estimates for OPEC spare capacity are in the range of 2.8 million barrels per day and offset Iran’s 2.2 million barrels per day of production, ideas of improving global oil demand and reduced North Sea output might have fostered the fear premium in the market. So far this morning, April crude oil prices have shrugged off disappointment by the IAEA and their talks in Tehran and over Iran’s nuclear program. Perhaps that is already priced in. The spread differential between April Brent and WTI crude oil remains under $16 a barrel premium to Brent this morning, off $2.00 from last week’s high. It is possible that this spread comes under added pressure as Enterprise Products has begun the process of reversing the flow of crude oil through the Seaway pipeline. The Presidents’ Day holiday delayed the release of weekly inventory data by one day. Expectations for this week’s inventory report are mixed, with the market leaning toward a slight draw of around 250,000 to 500,000 barrels. US inventory levels broke a four week streak of builds last week, supported by an increase in imports. Price action in April crude oil favors the bull camp, with swing low support at $104.61. This also corresponds with yesterday’s breakaway gap, which leaves support at $104.61 down to $104.50. Meanwhile, prices have reached into overbought territory after an impressive February rally into yesterday’s high of 11.1%, and that leaves the market susceptible to a downside correction. The early morning bias favors the bear camp, but losses appear limited until prices break $104.90 uptrend channel support.
GASOLINE: April RBOB prices have taken a slightly lower track this morning, as they consolidated yesterday’s surge into a new contract high. It appears that a somewhat weaker outside market tone this morning, with weakness in Brent crude oil and a rally in the US dollar are factors weighing on RBOB prices. Yesterday’s gains in gasoline futures were fueled in part by a surge in West Coast cash prices, up nearly $0.18, fueled in part by the idling of a 225,000 barrel per day BP refinery. The gasoline market also seemed to draft a level of support from European inventory data for January that showed a 3.5% drop in supplies on the month. Recent gains in US gasoline prices have sparked concerns that they could begin to chip away at economic growth by reducing consumers spending. Higher gasoline prices have sparked comments from the Obama administration, which plans to address the issue on Thursday. The latest data from the EIA pegged US gasoline prices up nearly $0.07 a gallon last week to $3.59. The short-term trend in April RBOB points in favor of the bull camp. New record speculative net-long positioning is seen as a positive until support levels at $3.1922 are violated.
HEATING OIL: April heating oil prices had a gap lower open Tuesday evening but have since pared those early losses. April heating oil rallied to its best levels since May 2011 in yesterday’s trade, which confirmed a breakout out of the February congestion zone. Prices are up nearly 3.7% from last week’s low, and price momentum indicators are flashing a bearish divergence. It is possible that some of the support in heating oil comes on expectations for this week’s distillate inventory report to show a draw in the range of 1.25 million barrels. The uptrend pattern in April heating oil remains intact as long as prices hold above $3.1795 swing low support. Overbought technical conditions, speculative selling interest and bearish momentum divergences warrant caution for the bull camp.
TODAY’S ENERGY MARKET GUIDANCE: The crude oil complex came under a measure pressure this morning in the wake of disappointing economic data out of China and Europe that sparked concerns over the strength of the global recovery. The uptrend pattern in April crude oil remains intact, with swing low support coming in at $104.61. There is a similar price formation setting up in April RBOB, with support at $3.1922. The US economic calendar turns to the housing market this morning, with the latest report on January existing home sales expected to show a slight gain on the month. Disappointment with the report could offer the crude oil complex a reason to pullback from technically overbought conditions.
Energy: Early Morning Bias Favors the Bear Camp, but Losses Appear Limited
by Dave Hightower on February 22, 2012
Below is a sample of The Hightower Report’s Daily Commentary. To get this comment, and our daily coverage of 15 additional markets and trade ideas, visit futures-research.com for your free 2 week trial!
CRUDE OIL MARKET FUNDAMENTALS: April crude oil prices rallied during the early morning hours but fell short of a test of yesterday’s high ($106.48). Since then, a dose of disappointing economic data and mounting concerns whether Greece can execute new reforms and austerity measures has tempered the outside market tone. February Chinese Purchasing Managers’ data showed the fourth straight month of contraction and European service sector data unexpectedly shrank in January, and that has injected a level of doubt over global recovery prospects. Probably more concerning to the crude oil market was the rather sharp drop in Chinese export orders in the wake of the Euro zone debt crisis. Meanwhile, it appears that the crude oil market continues to sport a level of support from supply disruptions fears out of the Middle East. While estimates for OPEC spare capacity are in the range of 2.8 million barrels per day and offset Iran’s 2.2 million barrels per day of production, ideas of improving global oil demand and reduced North Sea output might have fostered the fear premium in the market. So far this morning, April crude oil prices have shrugged off disappointment by the IAEA and their talks in Tehran and over Iran’s nuclear program. Perhaps that is already priced in. The spread differential between April Brent and WTI crude oil remains under $16 a barrel premium to Brent this morning, off $2.00 from last week’s high. It is possible that this spread comes under added pressure as Enterprise Products has begun the process of reversing the flow of crude oil through the Seaway pipeline. The Presidents’ Day holiday delayed the release of weekly inventory data by one day. Expectations for this week’s inventory report are mixed, with the market leaning toward a slight draw of around 250,000 to 500,000 barrels. US inventory levels broke a four week streak of builds last week, supported by an increase in imports. Price action in April crude oil favors the bull camp, with swing low support at $104.61. This also corresponds with yesterday’s breakaway gap, which leaves support at $104.61 down to $104.50. Meanwhile, prices have reached into overbought territory after an impressive February rally into yesterday’s high of 11.1%, and that leaves the market susceptible to a downside correction. The early morning bias favors the bear camp, but losses appear limited until prices break $104.90 uptrend channel support.
GASOLINE: April RBOB prices have taken a slightly lower track this morning, as they consolidated yesterday’s surge into a new contract high. It appears that a somewhat weaker outside market tone this morning, with weakness in Brent crude oil and a rally in the US dollar are factors weighing on RBOB prices. Yesterday’s gains in gasoline futures were fueled in part by a surge in West Coast cash prices, up nearly $0.18, fueled in part by the idling of a 225,000 barrel per day BP refinery. The gasoline market also seemed to draft a level of support from European inventory data for January that showed a 3.5% drop in supplies on the month. Recent gains in US gasoline prices have sparked concerns that they could begin to chip away at economic growth by reducing consumers spending. Higher gasoline prices have sparked comments from the Obama administration, which plans to address the issue on Thursday. The latest data from the EIA pegged US gasoline prices up nearly $0.07 a gallon last week to $3.59. The short-term trend in April RBOB points in favor of the bull camp. New record speculative net-long positioning is seen as a positive until support levels at $3.1922 are violated.
HEATING OIL: April heating oil prices had a gap lower open Tuesday evening but have since pared those early losses. April heating oil rallied to its best levels since May 2011 in yesterday’s trade, which confirmed a breakout out of the February congestion zone. Prices are up nearly 3.7% from last week’s low, and price momentum indicators are flashing a bearish divergence. It is possible that some of the support in heating oil comes on expectations for this week’s distillate inventory report to show a draw in the range of 1.25 million barrels. The uptrend pattern in April heating oil remains intact as long as prices hold above $3.1795 swing low support. Overbought technical conditions, speculative selling interest and bearish momentum divergences warrant caution for the bull camp.
TODAY’S ENERGY MARKET GUIDANCE: The crude oil complex came under a measure pressure this morning in the wake of disappointing economic data out of China and Europe that sparked concerns over the strength of the global recovery. The uptrend pattern in April crude oil remains intact, with swing low support coming in at $104.61. There is a similar price formation setting up in April RBOB, with support at $3.1922. The US economic calendar turns to the housing market this morning, with the latest report on January existing home sales expected to show a slight gain on the month. Disappointment with the report could offer the crude oil complex a reason to pullback from technically overbought conditions.
Tags: Crude Oil, Energy, Gasoline, Heating Oil, RBOB
About Dave Hightower