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CRUDE OIL MARKET FUNDAMENTALS: Crude oil has pulled back from overnight highs after making an initial push above $80. Some of the profit taking in oil is likely tied to a steady Dollar/weaker equity trade overnight while lingering demand doubts could also be holding the market back. To a certain extent, the 3.5% gain in 3rd quarter GDP with the economy growing at the fastest pace in two years has helped to revive macro economic optimism that had been undermined earlier in the week by the soft readings in consumer sentiment and new home sales. Seeing US jobless claims fall has also helped to ease macro economic doubts and improve oil market sentiment a bit. But this week’s EIA report did show builds in gasoline and crude oil stocks and continuing evidence of weak fuel demand seems to have left the bull camp’s confidence a bit shaky. In fact, the global oil demand outlook may have been undermined by news that Japan’s oil product sales fell 5.9% last month due to weak industrial fuel use and low gas sales raising doubts that the strength in China’s oil demand can lead to global oil growth. Major oil companies have also reported poor corporate results due to weak fuel demand and that has also been creating some doubt among oil traders. Since pulling back from the high reached earlier in the month, December crude oil has had a hard time recapturing price levels above $80. But in order for the oil market to completely push aside internal supply/demand concerns and further raise macro economic expectations for a recovery in oil demand will likely require seeing good readings in today’s reports on consumer sentiment and Chicago PMI. A good portion of yesterday’s gains were also tied to the sell off in the Dollar which creates a bullish environment for commodities and raises the investment appeal of oil as an inflation hedge. After failing at a key chart level in yesterday’s trade, we suspect the Dollar could soon start a new leg down. But given the weak early price action in crude oil, the Dollar will need to build on yesterday’s losses in order for the oil market to regain its footing. Yesterday’s rally in crude oil was impressive, but technical indicators still show the market to be overbought and that could be another factor weighing on prices this morning. Therefore, in order for the oil market to completely shake off oil demand doubts and overcome its technical condition we suspect a very bullish outcome will need to be seen in today’s economic reports that triggers a strong positive reaction in equities and a break in the Dollar. End of the month position adjustments and the expiration of the November product contracts could also play a role in today’s trade that adds volatility in the session.
GASOLINE: December gasoline has started to pull back in the early overnight action as apparently the trade may want to see more evidence of a macro economic recovery before pushing the market to higher price levels. The rise in gasoline stocks and generally weak oil demand data have pulled the rug from under the bull camp this week. Yesterday’s strong GDP reading helped to restore some of the macro economic optimism that has faded this week, but we suspect stronger than expected readings in today’s scheduled reports will be necessary to further convince the trade that the economic momentum seen in the 3rd quarter is continuing in this quarter. Despite the sell off this week, December gasoline still looks a bit short-term overbought and for the market to overcome its technical condition will also likely require price support from bullish outside market influences. The technical action in the Dollar yesterday looked as if the recent corrective bounce in the currency had been completed and Dollar ready to resume its downtrend. But the Dollar has held fairly steady overnight and unless the currency starts to back peddle, we suspect gasoline could give back a portion of yesterday’s gains. Support for December gasoline comes in between $2.01 and $2.00 and below there at $1.9690, with resistance at $2.0441 then $2.085. A volatile trade could be seen due to end of the month profit taking and the expiration of the November gasoline contract.
HEATING OIL: December heating oil has backed away from yesterday’s highs in the overnight trade as a lack of follow through weakness in the Dollar and a soft equity market trade seems to have inspired some traders to book profits following yesterday’s price gains. While the GDP reading seemed to restore some macro economic optimism that had been lost earlier in the week, apparently the trade needs more economic convincing before lifting December heating oil back over the $2.10 resistance level. Certainly the fundamentals for this market remain bearish with distillate stocks high, a mild temperature outlook keeping heating demand low and industrial fuel use still weak. Technical indicators still show heating oil to be overbought and that condition is likely another factor weighing on the market. Therefore, the trade will need to see a combination of strong economic news and a sell off in the Dollar in order for the bull camp to reclaim control and make a run at yesterday’s highs. Otherwise, December heating oil could end up giving back a good portion of yesterday’s gains.
TODAY’S ENERGY MARKET GUIDANCE: Bearish outside market influences and some lingering fuel demand doubts are giving the bear camp the early edge. Therefore, in order to shift control back to the bull camp today’s economic reports will need to trigger a sharp sell off in the Dollar.
Metals Market Commentary – 2009.10.30
by Dave Hightower on October 30, 2009
Below is a sample of our 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!
OUTSIDE MARKET DEVELOPMENTS: While the UK saw a rise in nationwide home prices overnight, there doesn’t appear to be a definitively up beat view toward the global economy in place this morning. In fact, the market saw lower Euro zone price readings, softer German retail sales figures and a sharp slide in Japanese housing starts and that would seem to leave a slightly less up beat macro economic view in place than was present in the prior trading session. However, the Dollar action wasn’t definitive and therefore the impact on gold and silver prices from the currency markets early this morning is mostly limited. The market is seeing weaker initial equity prices and that might be considered a slight negative to the precious metals markets. The US will present Personal Income and Personal Spending readings this morning and the expectations for those readings are relatively benign. The trade will also see an important inflation reading from the US PCE index but with expectations calling for only a half percent gain in that reading, the metals markets probably won’t come away from the news with a huge inflation reaction. There are also some regional purchasing manager’s reports out later in the morning trade today, but the overall expectation today seems to be that the US numbers aren’t going to offer up anything impressive or surprising.
GOLD MARKET FUNDAMENTALS: While the direction of gold prices recently has seemingly been trained on the outlook for the US and global economies, the gold trade continues to see ongoing developments from an anticipated minor sale of Russian gold. The trade also saw a series of higher gold production figures from some key miners overnight, but that news doesn’t appear to be applying distinct pressure to gold prices. On the other hand, if the outlook toward the economy deteriorates again it is possible that the bear camp might try to play up the news of rising physical gold production. Clearly gold has behaved like a physical commodity this week, by falling sharply in the face of weak numbers and weak equities at the start of the week. However, the gold market did manage to rise sharply yesterday in the wake of favorable US numbers and very favorable equity market action. On the other hand, choppy to weak international equity market action overnight and somewhat slack international data flow overnight might serve to increase the importance of the US number flow later this morning.
SILVER MARKET FUNDAMENTALS: The bulls will tout December silver’s capacity to rise above the prior session’s high, while the bear camp will suggest that the silver market was unable to hold that pulse up attempt. With equities showing initial weakness and copper prices also under a bit of early pressure, the bear camp would seem to have an edge in the outside markets category. However, the Dollar action is mostly nondescript and unless the US numbers manage to offer up something slightly better than expected, it would not appear that the broad based economic optimism that was seen in the prior trading session will become a dominating view today. Nonetheless, the sharp recovery move in the prior trading session probably took away some of the bear’s confidence, that was built into the silver market early in the week. For the time being, the direction of silver prices might be largely influenced by the direction of US equities, as the scheduled US data today isn’t first tier data and the expectations for the data are pretty nondescript.
PLATINUM: Like gold and silver prices, it would seem like platinum over reacted to the favorable shift in economic sentiment. While we don’t expect to see an aggressive slide in platinum prices today, the path of least resistance might be set to point downward in the wake of nondescript US data and initially weak equity prices. In short, without a surprise bullish economic development, we see a bit of back and fill action in the platinum market today.