Mixed bag this morning. Gold under pressure and Crude and Copper showing some strength. With stocks up and US Dollar weaker give the impression that sentiment on the economy is becoming more stable. Corn and Soybean crop conditions continue to worsen which should provide some under-pin to the market.
Tag Archives: Crude Oil
The ‘Risk Off’ Mentality Continues
Global equity markets continue to slide overnight. Concerns over the European banking industry persist. Fund held positions of long crude / short natural gas are rumored to be getting unwound. This may cause a short-covering bounce in natural gas. Corn and other agricultural markets continue to be pulled down by outside macro-economic influences as opposed to their bullish internal fundamentals.
After Downgrade, New Opportunities
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Part of the market’s malaise since August 1st came as a result of bickering in Washington over whether to raise the US debt ceiling, but it also came from the European debt debacle, the S&P downgrade of the US credit rating and the cycle of poor economic data from around the globe. However, it is possible that the 17.5% plunge in the September S&P 500, the $23 decline in crude oil prices, the 37 basis point drop in 10-Year Note yields and the 16% drop in copper prices in just 7 trading sessions could have been an overreaction.
True, many players are disgusted with gridlock in Washington over raising the US debt ceiling, a primary factor behind the downgrade of the coveted triple-A rating. Many have lost trust in Congress and in turn have voted by selling the market. This sell-off, which has occurred across most markets, reflects concerns over an economic slowdown, but certain commodities market might have already factored in sustained slowing and the lack of clarity about the US and Euro zone debt problems.
In our opinion, commodities are and will continue to be less responsive to the downturn in the economy than other instruments. We also think that certain commodity markets will be able to turn back up with only minimal evidence of an economic recovery and certainly in the event that spending cuts are found by the Super Committee.
Therefore, the markets are in need of a catalyst, a measure of support or surprise to help shift sentiment from the “sky is falling” view to one of “hope”. Factors that could turn the tide include:
- Super Committee progress on budget cuts,
- Signs that a US Tax Code overhaul is possible,
- Further support from US Fed (QE3),
- Signs that the US economy has retained positive momentum.
No Sign of a Fundamental Bottom Yet – Look to the Technicals for Timing
In looking at a chart of the speculator positioning in a composite of a physical commodity markets, it is clear that a significant portion of the net long position in non financial commodities was liquidated in the April through July decline. Our estimate is that the close on August 10th put the net spec and fund long of non financial commodities at 1.2 million contracts, which closely equates to the reading that was posted the week of July 5th. The current positioning also appears to relate fairly well to the reading that was posted on July 27th of 2010. Therefore, we see the commodity markets sitting at a fairly critical pivot point or value zone. To see even lower prices ahead might require a broader acceptance of a “return to recession” mentality in the US.
With the Continuous Commodity Index having fallen to a fresh new low for the move as of August 10th and reaching its lowest level since early January, we suggest that traders remain negative towards those markets that have classically bearish fundamentals, like sugar, cattle and soybeans. At the same time they should wait until the fundamentally bullish markets like copper, corn, crude oil, hogs and platinum reach down to solid chart support levels before establishing long positions in them.
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Energy: Crude Is Looking For a Value Range; Bears Appear To Control Products
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CRUDE OIL MARKET FUNDAMENTALS: A weak outside market tone and stronger US Dollar weigh on the crude oil prices to start this morning. The Bank of Japan intervened into the currency markets last night by selling nearly $13 billion in Yen, and that has sparked a sharp upside reversal in the US dollar. Growing concerns about slowing economic growth in the US present the crude oil market with another negative. Another major global bank lowered their world oil demand figures due to the current economic slowdown in the US. This particular company lowered their 2011 increase in demand by about 30.0% to a rate of 88.7 million barrels per day. What is important about their downward revision is that it is likely to follow more downward revisions by other forecasters and government agencies. Yesterday’s EIA inventory data showed US crude stocks rose 950,000 barrels last week, which was in line with expectations. Some traders viewed the minimal build in the wake of a 4.5 million barrel draw in SPR supplies as a slight positive. EIA crude stocks are 3.005 million barrels below year ago levels, but 19.504 million barrels above the five year average. There was a rather notable decline in crude oil imports of more than 7.0% to 9.134 million barrels per day. The refinery operating rate was 89.3%, up 1.0% from last week, and compares to 91.2% last year and the five year average of 89.12%. September crude oil established a new low for the decline in the early morning hours and is on track to challenge the June lows of $90.17. At the same time, this week’s nearly $8.00 slide has created a short term oversold condition, vulnerable to a short covering rally. Short term resistance comes in for September Crude oil at $92.05.
GASOLINE: September RBOB prices are off more than 8.0% from this week’s high to this morning’s low. Prices plunged out of the recent four week trading to the downside yesterday, and they have extended their decline during the early morning hours. September RBOB finished Wednesday’s session down by more than 3.5% after EIA inventory data showed a larger than expected weekly increase of 1.701 million barrels. EIA gasoline stocks are 7.795 million barrels below last year, but 4.038 million above the five year average. Average total gasoline demand for the past four weeks was down 3.63% compared to last year, and it is the lowest reading for the summer season. The weakness in gasoline demand was seen as a primary catalyst for the downdraft. Gasoline imports came in at 845,000 barrels per day compared to 662,000 barrels the previous week. The higher refinery capacity rate seen last week was also viewed as another negative headwind for the gasoline market that is likely to keep the market well supplied. The edge goes to the bear camp, with the next downside support coming in at the July 1st low of $2.8675.
HEATING OIL: September heating oil prices continued their slide overnight, falling to their lowest level since July 7th. Yesterday’s price action confirmed a breakdown out of recent congestion and puts the edge in favor of the bears. The heating oil market sold-off sharply in the wake of yesterday’s EIA inventory data that showed a rise in distillate supplies of 409,000 barrels. EIA distillate stocks stand at 17.432 million barrels below last year, but 7.364 million above the five year average. Distillate imports came in at 205,000 barrels per day compared to 161,000 barrels the previous week. Average total distillate demand for the past four weeks was up 1.69% compared to last year. The soft demand reading in distillates was seen as a key factor behind breakdown. EIA heating oil stocks rose 896,000 barrels and are 12.770 million barrels below last year and 7.584 million below the five year average. September heating oil has gap support below at $2.9926 to $2.9791, with targeting below at $2.96.
TODAY’S ENERGY MARKET GUIDANCE: A rally in the US Dollar, economic growth concerns and sluggish demand readings continue to weigh over the crude oil complex. September crude oil appears to be looking for a new value range as it challenges its June lows of $90.17. It is possible that the decline has run ahead of itself in the short term and vulnerable to a technical rebound. The bears are in charge in the product markets and have finally confirmed a breakdown out of the very tight coiling range.
Crude Oil: Many Factors Support Higher Prices Ahead
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There are a number of factors that favor higher crude oil prices ahead, including the recent string of improved global economic data, a shift in risk attitudes and stronger technical indicators.
A key driver behind expectations for higher prices comes from expectations for a rebound in global growth rates during the second half of 2011. After weak first quarter growth in the US (GDP +1.9%), expectations from a number of Fed officials are calling for GDP growth approaching 4.0% for the rest of 2011. The latest ISM Manufacturing Survey, along with regional manufacturing data, point to a turnaround in May that will likely lead to 2nd quarter growth of around 2.7%. Economic data from Japan showed a significant rebound in Japanese Industrial Production following the recovery in supply chains in the wake of the March earthquake. A 7-week slide in US retail gasoline prices of 10% is another factor bolstering growth forecasts for the back half of 2011.
Meanwhile, there has been a notable shift in risk attitudes following a vote on a new austerity package in Greece that enables them to receive additional EU/IMF funding. While the situation has not completely gone away, ideas that key European countries like France and Germany are working on solutions to avert a debt default are seen as a positive. Progress also seems to be taking place on the US debt ceiling debate, with a growing chance that Congress and the President will be able to reach a decision prior to the August 2nd deadline. With progress being made on these two fronts, the appetite for risk has also turned higher and has encouraged investment back into the crude oil market.
The latest COT data provided an indication that the long-liquidation trend of the last few months has run its course. As of June 28th, the spec net long positioning had plunged to its lowest level since September 28, 2010. And since the March 8th highs, money managers slashed their record net long positioning by nearly 51%.
Forecasts from the US Department of Energy have pegged 3rd quarter worldwide petroleum demand at 89.18 million barrels per day. At an annual growth rate of 2.0%, that would lead to a deficit of 850,000 barrels by the start of the 4th quarter. If the global growth rates increase toward the 4.0% baseline level, there could be an even greater shortfall. The pickup in emerging market demand is expected to more than absorb the temporary boost in supplies that resulted from the IEA’s decision to release 60 million barrels from strategic reserves,
The crude oil market experienced a dramatic 22% sell-off from the May 2nd high to the June 27th low. The June low of $90.17 is a key intermediate term low, as it satisfied a 31.8% Fibonacci retracement of the August 2010 through April 2011 rally. We view the recent strength in September crude oil and its close back above the 200-day moving average as further confirmation that the $90.17 low marked the conclusion of the May-June correction.
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Energy: Looking to US Numbers for Demand Signals
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: August crude oil challenged last week’s low during the early morning hours, which was able to contain early weakness. Concerns over slowing economic growth in the US and China along with the potential of the IEA releasing more supplies on to the market continue to weigh on prices. Brent crude oil prices have led to the downside in recent sessions, and that appears to be the case again this morning. The market seems concerned over the upcoming Greek austerity vote, and some traders suggest that Brent could slip further toward the $100 level. August Brent crude oil slipped into new low ground this morning and challenged its 200 day moving average of $102.25 before rebounding. The weakness in Brent crude oil tightened the differential to WTI back below $13.00. Meanwhile, Iran’s oil minister noted concern over the IEA’s decision to release supplies and added that supply and demand fundamentals in the crude oil market were functioning correctly. It also seems that Libyan rebels are making progress against Gaddafi forces, and prospects that the leader could be overthrown and oil production restored could present the market with even more supply. The Commitments of Traders Futures and Options report as of June 21st showed non-commercial traders were net long 199,077 contracts, a decrease of 22,649. Non-commercial and nonreportable traders combined held a net long position of 229,876 contracts, a decrease of 24,408 on the week. This long liquidation trend by the speculators has taken their net long position to the levels not seen since the 4th quarter of 2010. Money managers cut their long positions to the lowest level since December. It is possible that crude oil could face added liquidation pressure if economic conditions continue to deteriorate. The bear camp has the early morning advantage, but its inability to break below Friday’s low of $89.82 might open the door for a corrective rebound. The bulls need to at least overcome the $91.20 level to turn the tide in their favor.
PRODUCT MARKET FUNDAMENTALS: GASOLINE: August RBOB established a new low for the move overnight and closed in on its 200-day moving average of $2.66. Prices managed to rebound during the early morning hours, helped by weakness in the US Dollar and rebound in global equity markets. The weakness in Brent crude oil relative to WTI crude oil continues to offer RBOB prices another negative headwind to work through. August RBOB prices finished the week with a plunge down to their lowest level since February 18th. However, weekend reports of a refinery flaring at a 360,000 barrel per day operation in Illinois could be a supportive feature situation during today’s session on reports that it could be down for a longer period of time. The Commitments of Traders Futures and Options report as of June 21st showed non-commercial traders were net long 54,161 contracts, a decrease of 7,284. The Commercial traders were net short 58,603 contracts, a decrease of 10,279. The Nonreportable traders were net long 4,443 contracts, a decrease of 2,993. Non-commercial and nonreportable traders combined held a net long position of 58,604 contracts, for a decrease of 10,277 in their net long positioning. The long position remains at relatively lofty levels, which leaves potential for more long-liquidation. The bear camp has the edge to start this morning, with resistance above at $2.7370 and support below at $2.66.
HEATING OIL: August heating oil prices slid down to their 200-day moving average during the early morning hours, but so far it has been able to rebound. This took the August contract down to its lowest level since February 8th. The Commitments of Traders Futures and Options report as of June 21st showed non-commercial traders were net long 25,258 contracts, a decrease of 10,642. The Commercial traders were net short 37,607 contracts, a decrease of 12,431. The nonreportable traders were net long 12,349 contracts, a decrease of 1,790. Non-commercial and nonreportable traders combined held a net long position of 37,607 contracts, a decrease of 12,432 during the week. The bears maintain the early advantage, but that would begin to change on a move above $2.7850. The short term down trend pattern remains intact till prices can overtake $2.8340 today.
TODAY’S ENERGY MARKET GUIDANCE: The crude oil complex has been able to rebound from its worst overnight levels, but remain in negative territory. Markets are keying in on this morning’s flow of US economic data on Consumer Spending and Chicago Manufacturing for demand clues. Further disappointment in this morning’s number could prompt some economists to ratchet down their growth outlooks. Meanwhile, the short term trends across the complex favor the bears.
US Senate Votes Down Ethanol Subsidy; Lowest Crude Trade Since January
Physical commodity markets seem to be ending the week with a negative bias. Greek debt concerns persist. Grain markets are seeing some better weather, but lots of uncertainty as to the uneven start to planting. Crude traded the lowest since January. That technical violation, combined with global demand slowing concerns, should the path of least resistance down.
China Sees Softening Inflation; Projections of Large Sugar Surplus
China reported softer industrial production, but also reported softer inflation numbers. Market is taking that as a sign that China is not going lead their economy into a “hard landing.” While encouraging the global economy just isn’t showing signs of a widespread recovery. Brent and West Texas Intermediate spread continues to widen. Predictions of a world sugar surplus of 8-10 million tonne have started to surface, and if true, will be a drag on sugar prices. While US plantings are getting done, but some analysts feel that the damage has already been done to the crop and supplies will continue to tighten.
Weaker To Start; Brent – WTI Spread hits $20; World Economy Faster Than US
Negative to start the week. Suggestions over the weekend that US may need another “Stimulus Package” to avoid a Japan-style stagflation decade. The Brent Cude – WTI Crude spread hit $20 again, which is an indication that US crude oil is cheaper than the rest of the world. This is also an indicator of weaker US demand for Crude. Weather continues to be a concern for US crops.
Energy: If Outside Pressure Continues, Look for Oct to Test August Lows
by Dave Hightower on August 19, 2011
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: The crude oil market extended yesterday’s declines overnight with a move to its lowest level since putting in its low on August 9th. Growing concerns that the US is slipping into another recession and anxiety over bank troubles in Europe sparked a steep sell-off in global equity markets yesterday, and this continued in the overnight session, pressuring economically sensitive commodity markets like crude oil. It appears that the economic news will be the dominant force on the energy markets again today, particularly if stock market sell-off builds into a full-fledged rout today. The EIA report from earlier this week showed a larger-than-expected build in crude oil stocks, so the supply stats are running bearish as well. President Obama’s announcement yesterday of additional sanctions against the Syrian oil industry is not expected to have a significant effect on the energy market because the US does very little business with that country anyway. The question is whether Europe will toughen its sanctions, and the EU is supposed to be considering that today. Libyan rebels have reportedly seized the last refinery that was held by pro-Gadhafi forces without damaging the refinery at all and that is bearish to prices. This news is probably a little bearish, especially to Brent crude, because it could ease some anxiety over Libyan oil supplies to Europe. After the sharp break yesterday and overnight, October crude oil is coming close to testing the August 9th spike bottom. Key support comes in at the August 9th close of 79.67 (which it already tested overnight) and at the low of 76.15 from that same day.
GASOLINE: The gasoline market is also feeling the pressure from outside market forces, but not quite as severely as crude oil, perhaps because of the supportive EIA stocks data earlier this week, which appears to leave a fundamental underpin to the market. Like crude oil, gasoline continued yesterday’s sell off overnight as global economic concerns put pressure on a wide range of “risky” assets like equities and energies. But the break so far has been mild relative to crude oil, as October RBOB was still more than 17 cents per gallon above the August 9th spike low overnight. This week’s EIA data showed a much larger than expected inventory draw for gasoline, with stocks falling 3.510 million barrels to 13.263 million barrels below year ago levels. Retracement support for October RBOB at $2.6103 and $2.5722 could be tested if equity markets continue to sell off today.
HEATING OIL: October heating oil was also under pressure from outside market forces overnight, as sharply lower equity markets in Asia and Europe put pressure on the energy complex as a whole. Still, the heating oil/distillate end of the complex appears to be holding up better than crude oil, perhaps because the market is in a stocks-building phase ahead of the heating season, which is keeping a fundamental underpin to prices. This week’s EIA data showed distillate stocks rising more than expected, with a build of 2.449 million barrels, but again, that is not too concerning to the market because one would expect them to be increasing at this time of year anyway. Average total distillate demand for the past four weeks was up 5.80% compared to last year. EIA heating oil stocks rose 651,000 barrels and are 11.219 million barrels below last year. Like RBOB, October heating oil has a way to go before it tests the August 9th spike low at $2.7154. Retracement support comes in at $2.6268, with additional support down at $2.7763. Trend line resistance is back up at $2.9423.
TODAY’S ENERGY MARKET GUIDANCE: The crude oil complex will start today’s session under pressure from a diminished economic outlook and other outside market pressure which is raising concerns over future energy demand and is also contributing to a sell-off in risky assets. If the outside market pressure continues today, look for October crude oil to test the August spike lows and for the products to fall under pressure as well.