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CRUDE OIL MARKET FUNDAMENTALS: Crude oil prices pulled back a bit in the overnight trade with the market under some pressure tied to concerns over Chinese fuel demand and worries about OPEC over production. Crude oil fell back from eight week highs after data from China showed a higher than expected inflation rate and robust industrial output rekindling jitters that China’s central bank will begin to tighten monetary policy more aggressively which could undercut oil demand in the world’s second largest oil consumer. Oil markets are also under a bit of pressure on indications OPEC will leave production levels unchanged at next week’s meeting while cartel compliance to quotas slipped to 53% last month and production reached a 14 month high. But so far the selling conviction in the oil market hasn’t been that strong since oil prices have been able to bounce from overnight lows and have even traded higher at times. So far, worries over China demand and OPEC supply haven’t inspired aggressive selling in oil despite the market being technically overbought up at these price levels. In fact, the need for China to do more incremental monetary tightening could also be seen as confirmation that the global economic recovery is starting to take hold. It also appears that concerns over tighter Chinese monetary policy are being offset to a certain degree by news this week that china’s oil imports in February were the second highest on record and that China’s refinery crude oil throughput rose to a record high last month. It also looks as if yesterday’s bullish inventory report is underpinning oil prices to a certain degree since the EIA reported a 1.4 million barrel rise in crude oil which was lower than expected while total product demand rose 3.8% and gasoline stocks unexpectedly fell. Given yesterday’s market action, it is clear that trading up at these price levels could continue to be volatile. The oil market’s resiliency to negative news suggests a strong upward price bias remains in place. But current conditions also suggest oil prices have moved a bit ahead of their fundamentals. With daily indicators at overbought extremes and funds likely holding close to a record net long position in this market suggest the bull camp’s resolve will be tested. If today’s weekly jobless claims data provides more good news on the economy that also supports gains in equities, we suspect April crude oil could make another run at yesterday’s high. A close over $82.50 would set the market up for a test of the January high. However, we also see the rally in crude oil a bit fragile up at these price levels which will leave oil vulnerable to bouts of profit taking unless the economic news and key outside market influences (particularly equities and the dollar) provide steady price support and give traders a fresh buying incentive. While the market’s momentum still appears to favor the bull camp, the so called “easy money” may have already been made and we suspect oil price gains above $82.50 will continue to be hard fought.
GASOLINE: While gasoline was also pressured by concerns over OPEC supplies and China monetary policy potentially cooling oil demand, the market has rebounded from overnight lows and has again shown remarkable resilience to negative news. Certainly the economic news out of China and the US recently has provided a more positive macro economic view that has traders pricing in higher fuel demand during the spring/summer driving season that could also tighten supplies, especially if refiners keep operating rates below average. Certainly yesterday’s EIA report showing a surprise 2.9 million barrel drop in fuel stocks and a 1.1% drop in the refinery operating rate supports an improving supply/demand view for gasoline. But at this juncture with daily indicators for April gasoline at an overbought extreme and the combined net spec long position likely near the record net long level, suggests price gains above $2.30 will be harder fought and that the market will likely need further confirmation from today’s reports that economic conditions are improving in order to avoid profit taking and provide traders with a fresh buying incentive at these price levels. While April gasoline remains vulnerable to bouts of profit taking, we still see profit taking breaks in gasoline back to support levels as buying opportunities as long as a positive macro economic view holds and equities trend higher. In fact, we see $2.30 as a pivotal bull/bear price for April gasoline with a close over this level then targeting $2.39 while a close below $2.30 suggests a setback to the $2.23 to $2.21 price range may be possible.
HEATING OIL: April heating oil has also been able to bounce back from overnight lows and it’s impressive to see that the market was able to hold a test of support near the $2.10 price level. While daily indicators suggest the market has become overbought, the price action shows the market retains an upward price bias and the larger than expected drop in distillate stocks along with the lower refinery operating rate is certainly helping to prop up prices. With the transition into spring, heating oil has become a market follower. It is certainly hard to justify a move to higher price levels for heating oil when distillate stocks are at a record level for this time of year and demand is still over 4% below year ago. Therefore, we suspect a move back to the January high will be hard fought unless heating oil generally sees strong upside leadership from the gasoline market. In fact, unless the economic news and outside market influences can provide a fresh buying incentive up at these high price levels, we suspect April heating oil will remain vulnerable to a profit taking break back towards $2.0710.
TODAY’S ENERGY MARKET GUIDANCE: The price action suggest oil markets retain an upward price bias. But oil markets are also overbought with funds likely holding close to record net long positions in oil and gasoline. Since technical conditions leave oil markets vulnerable to profit taking, a combination of bullish economic news and positive outside market support will be needed to push oil prices to higher levels
Energy Market Commentary – 2010.03.11
by Dave Hightower on March 11, 2010
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!
CRUDE OIL MARKET FUNDAMENTALS: Crude oil prices pulled back a bit in the overnight trade with the market under some pressure tied to concerns over Chinese fuel demand and worries about OPEC over production. Crude oil fell back from eight week highs after data from China showed a higher than expected inflation rate and robust industrial output rekindling jitters that China’s central bank will begin to tighten monetary policy more aggressively which could undercut oil demand in the world’s second largest oil consumer. Oil markets are also under a bit of pressure on indications OPEC will leave production levels unchanged at next week’s meeting while cartel compliance to quotas slipped to 53% last month and production reached a 14 month high. But so far the selling conviction in the oil market hasn’t been that strong since oil prices have been able to bounce from overnight lows and have even traded higher at times. So far, worries over China demand and OPEC supply haven’t inspired aggressive selling in oil despite the market being technically overbought up at these price levels. In fact, the need for China to do more incremental monetary tightening could also be seen as confirmation that the global economic recovery is starting to take hold. It also appears that concerns over tighter Chinese monetary policy are being offset to a certain degree by news this week that china’s oil imports in February were the second highest on record and that China’s refinery crude oil throughput rose to a record high last month. It also looks as if yesterday’s bullish inventory report is underpinning oil prices to a certain degree since the EIA reported a 1.4 million barrel rise in crude oil which was lower than expected while total product demand rose 3.8% and gasoline stocks unexpectedly fell. Given yesterday’s market action, it is clear that trading up at these price levels could continue to be volatile. The oil market’s resiliency to negative news suggests a strong upward price bias remains in place. But current conditions also suggest oil prices have moved a bit ahead of their fundamentals. With daily indicators at overbought extremes and funds likely holding close to a record net long position in this market suggest the bull camp’s resolve will be tested. If today’s weekly jobless claims data provides more good news on the economy that also supports gains in equities, we suspect April crude oil could make another run at yesterday’s high. A close over $82.50 would set the market up for a test of the January high. However, we also see the rally in crude oil a bit fragile up at these price levels which will leave oil vulnerable to bouts of profit taking unless the economic news and key outside market influences (particularly equities and the dollar) provide steady price support and give traders a fresh buying incentive. While the market’s momentum still appears to favor the bull camp, the so called “easy money” may have already been made and we suspect oil price gains above $82.50 will continue to be hard fought.
GASOLINE: While gasoline was also pressured by concerns over OPEC supplies and China monetary policy potentially cooling oil demand, the market has rebounded from overnight lows and has again shown remarkable resilience to negative news. Certainly the economic news out of China and the US recently has provided a more positive macro economic view that has traders pricing in higher fuel demand during the spring/summer driving season that could also tighten supplies, especially if refiners keep operating rates below average. Certainly yesterday’s EIA report showing a surprise 2.9 million barrel drop in fuel stocks and a 1.1% drop in the refinery operating rate supports an improving supply/demand view for gasoline. But at this juncture with daily indicators for April gasoline at an overbought extreme and the combined net spec long position likely near the record net long level, suggests price gains above $2.30 will be harder fought and that the market will likely need further confirmation from today’s reports that economic conditions are improving in order to avoid profit taking and provide traders with a fresh buying incentive at these price levels. While April gasoline remains vulnerable to bouts of profit taking, we still see profit taking breaks in gasoline back to support levels as buying opportunities as long as a positive macro economic view holds and equities trend higher. In fact, we see $2.30 as a pivotal bull/bear price for April gasoline with a close over this level then targeting $2.39 while a close below $2.30 suggests a setback to the $2.23 to $2.21 price range may be possible.
HEATING OIL: April heating oil has also been able to bounce back from overnight lows and it’s impressive to see that the market was able to hold a test of support near the $2.10 price level. While daily indicators suggest the market has become overbought, the price action shows the market retains an upward price bias and the larger than expected drop in distillate stocks along with the lower refinery operating rate is certainly helping to prop up prices. With the transition into spring, heating oil has become a market follower. It is certainly hard to justify a move to higher price levels for heating oil when distillate stocks are at a record level for this time of year and demand is still over 4% below year ago. Therefore, we suspect a move back to the January high will be hard fought unless heating oil generally sees strong upside leadership from the gasoline market. In fact, unless the economic news and outside market influences can provide a fresh buying incentive up at these high price levels, we suspect April heating oil will remain vulnerable to a profit taking break back towards $2.0710.
TODAY’S ENERGY MARKET GUIDANCE: The price action suggest oil markets retain an upward price bias. But oil markets are also overbought with funds likely holding close to record net long positions in oil and gasoline. Since technical conditions leave oil markets vulnerable to profit taking, a combination of bullish economic news and positive outside market support will be needed to push oil prices to higher levels
Tags: Crude Oil, Energy, Gasoline, Heating Oil, RBOB
About Dave Hightower