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Crude oil has made an attempt to trade higher overnight, but the bull camp’s grip on the market also looks to be slipping a bit. Another sharp break in the dollar overnight has helped the crude oil carve out some follow through gains from yesterday’s rally and that is certainly a critical factor supporting crude oil prices. The strength in the energy complex this week seems to be part of a broad based recovery effort across many markets as the weak action in the Dollar and relatively cheap commodity prices appear to be luring some investors back to physical commodities as an inflation hedge. But unless the Dollar continues to weaken, the bull camp in crude oil could lose its edge. OPEC’s threat to make deeper supply cuts and yesterday’s lower than expected rise in crude oil stocks may be adding to the market’s positive tone. It also appears the Fed’s rate cut is somewhat helping to temper the extreme bearish outlook for the economy and that seems to be providing a measure of support to crude oil. With other central banks also expected to follow the Fed’s move, an easing in global credit conditions does seem to be taking place, at least for now, therefore the incredibly grim outlook for oil demand, that energy markets were pricing in last week seems to be in question. In fact, rate cut expectations yesterday and the view the Fed may be able to orchestrate a softer economic landing enabled the energy complex to push aside the fact that the demand environment for oil remains very weak, especially with the EIA showing total product demand falling 7.8% below year ago levels. But overnight gains in crude oil have been relatively modest and with the market running into overhead resistance above the $70 price level, crude oil’s technical momentum seems to be stalling a bit. In fact, if today’s 3rd quarter GDP reading, expected to show a contraction in growth, comes in weaker than expected that could begin to derail the bull camp and revive economic doubts again. While Dec crude oil has the technical capacity to move higher, the market’s ability to make a strong push above $70 and launch a fuller recovery back to the $75 to $80 price range will likely require sustained bullish action from outside markets, particularly a deeper slide in the Dollar and strong upward leadership from equity markets. Otherwise, the technical correction in Dec crude oil could be cut short well under the $75 level.
GASOLINE: Dec gasoline has also attempted to trade higher overnight, but like crude oil the market’s upward momentum seems to be stalling a bit. While yesterday’s rate cut may eventually help to improve the demand environment for gasoline, it hasn’t definitively lifted the economic uncertainty yet. Unless more economic confidence can be restored by seeing better than expected economic data or an even stronger recovery in the equity markets, the gasoline market is still facing a reality that demand last week was 3.4% below a year ago. Although the unexpected 1.5 million barrel decline in gasoline stocks did help temper the weak demand reading. On a technical basis there is certainly the potential for Dec gasoline to trade back to $1.75 given the market’s oversold condition. But the bull camp’s resolve will certainly be tested this session with the release of the 3rd quarter GDP and Jobless claims readings especially since very negative readings could quickly shift control back to the bear camp.
HEATING OIL: The heating oil market has also backed away from overnight highs and we suspect seeing more weak economic readings from Europe may be limiting gains. Despite expectations for another round of coordinated global rate cuts, it seems as if the heating oil market may be finding it difficult to look beyond the current bearish situation. In fact, the larger than expected 2.325 million barrels gain in US distillate stocks and distillate demand down 5.2% from year ago may be hindering the market’s technical recovery. A mild temperature outlook may also be a limitation for the bull camp and if weaker than expected economic news is seen today it won’t be surprising to see Dec heating oil dip back below $2.00. Given the strength in the equity markets and weak action in the Dollar, the gains in the energy complex so far are a bit disappointing. Trading could get volatile due to month end and the expiration of the Nov product futures contracts at the end of the week.
Crude Oil Market Commentary – 2008.10.30
by Dave Hightower on October 30, 2008
Below is a sample of our Daily Commentary. To get this comment, and our daily coverage of 15 additional markets, visit futures-research.com for your free 2 week trial!
Crude oil has made an attempt to trade higher overnight, but the bull camp’s grip on the market also looks to be slipping a bit. Another sharp break in the dollar overnight has helped the crude oil carve out some follow through gains from yesterday’s rally and that is certainly a critical factor supporting crude oil prices. The strength in the energy complex this week seems to be part of a broad based recovery effort across many markets as the weak action in the Dollar and relatively cheap commodity prices appear to be luring some investors back to physical commodities as an inflation hedge. But unless the Dollar continues to weaken, the bull camp in crude oil could lose its edge. OPEC’s threat to make deeper supply cuts and yesterday’s lower than expected rise in crude oil stocks may be adding to the market’s positive tone. It also appears the Fed’s rate cut is somewhat helping to temper the extreme bearish outlook for the economy and that seems to be providing a measure of support to crude oil. With other central banks also expected to follow the Fed’s move, an easing in global credit conditions does seem to be taking place, at least for now, therefore the incredibly grim outlook for oil demand, that energy markets were pricing in last week seems to be in question. In fact, rate cut expectations yesterday and the view the Fed may be able to orchestrate a softer economic landing enabled the energy complex to push aside the fact that the demand environment for oil remains very weak, especially with the EIA showing total product demand falling 7.8% below year ago levels. But overnight gains in crude oil have been relatively modest and with the market running into overhead resistance above the $70 price level, crude oil’s technical momentum seems to be stalling a bit. In fact, if today’s 3rd quarter GDP reading, expected to show a contraction in growth, comes in weaker than expected that could begin to derail the bull camp and revive economic doubts again. While Dec crude oil has the technical capacity to move higher, the market’s ability to make a strong push above $70 and launch a fuller recovery back to the $75 to $80 price range will likely require sustained bullish action from outside markets, particularly a deeper slide in the Dollar and strong upward leadership from equity markets. Otherwise, the technical correction in Dec crude oil could be cut short well under the $75 level.
GASOLINE: Dec gasoline has also attempted to trade higher overnight, but like crude oil the market’s upward momentum seems to be stalling a bit. While yesterday’s rate cut may eventually help to improve the demand environment for gasoline, it hasn’t definitively lifted the economic uncertainty yet. Unless more economic confidence can be restored by seeing better than expected economic data or an even stronger recovery in the equity markets, the gasoline market is still facing a reality that demand last week was 3.4% below a year ago. Although the unexpected 1.5 million barrel decline in gasoline stocks did help temper the weak demand reading. On a technical basis there is certainly the potential for Dec gasoline to trade back to $1.75 given the market’s oversold condition. But the bull camp’s resolve will certainly be tested this session with the release of the 3rd quarter GDP and Jobless claims readings especially since very negative readings could quickly shift control back to the bear camp.
HEATING OIL: The heating oil market has also backed away from overnight highs and we suspect seeing more weak economic readings from Europe may be limiting gains. Despite expectations for another round of coordinated global rate cuts, it seems as if the heating oil market may be finding it difficult to look beyond the current bearish situation. In fact, the larger than expected 2.325 million barrels gain in US distillate stocks and distillate demand down 5.2% from year ago may be hindering the market’s technical recovery. A mild temperature outlook may also be a limitation for the bull camp and if weaker than expected economic news is seen today it won’t be surprising to see Dec heating oil dip back below $2.00. Given the strength in the equity markets and weak action in the Dollar, the gains in the energy complex so far are a bit disappointing. Trading could get volatile due to month end and the expiration of the Nov product futures contracts at the end of the week.
Tags: Crude Oil, Energy, Heating Oil
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