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CRUDE OIL MARKET FUNDAMENTALS: Crude oil opened steady and then took a negative turn during the overnight and early morning US trade action. Outside market influences take top step again as skepticism rains over the EU stabilization plan. Flight to quality bids resurfaced again and that bolstered the US dollar and US Treasury markets, while equities and most physical commodities like crude oil come under attack again. There were many positive factors that surfaced overnight that would otherwise have provided support to crude prices. First was Chinese inflation data that came in above expectations to post new 18-month highs, but there is concern that this could prompt the Chinese central bank to tighten monetary policy by lifting rates. Secondly, China implied oil demand posted its 8th consecutive monthly double digit growth figure and that trend is expected to continue, as factories return to normal operating levels and the Chinese farming season gets into full swing. Chinese refinery crude throughput up 17.1% year over year to a record high of 8.37 Mln bpd in April and that would ordinarily be seen as a very solid demand reading. Echoing that strong demand stance, was data released out of OPEC this morning, that indicated the 3rd consecutive monthly increase in world oil demand by 950,000 bpd, and that is up 50,000 barrels from previous forecasts. Finally, industrial production figures out of the UK blew past street estimates to +2.0% on the month, which is expected to boost UK GDP growth. This further indicates a recovering global manufacturing sector and possible improvements in demand at home and abroad. However, while internal market fundamentals are positive for crude oil prices today, uncertainty about the implementation of the EU debt program have partially escalated again. July crude oil has initially suffered and made a test of Monday’s low trade of 79.21, leaving the next support area at last week’s lows of 77.74. Therefore, the bears have the edge to begin Tuesday’s trade and they are being helped by weak outside market factors.
GASOLINE: The overnight trade in RBOB was lower as outside markets reassess the effectiveness of the EU/IMF stabilization program. Concerns mount over its execution and potential success of that plan, while the root of the problem, surging debt levels remains intact. The US Dollar continues to build on Monday’s bullish turnaround and has made a run for the 85.00 level and that has undermined many physical commodity markets like RBOB. Trade data out of China would normally have a positive influence on the gasoline trade but that news has taken a back seat to the Euro issue. China’s National Bureau of Statistics released output figures for gasoline, which came in down 2.8% on the month, but up 5.5% on the year. Late Monday, the EIA’s weekly survey showed that US gasoline prices averaged $2.91 per gallon, despite last weeks rout in energy markets and we think that highlights the trend in demand and the eventual trend in gas prices. Trade estimates for this week’s inventory data suggest a continued build in gas stocks near 750,000 barrels and that in conjunction with residual outside market negatives and that leaves the bear camp with the edge. Near term downside targeting is seen at $2.1340 basis the June RBOB contract.
HEATING OIL: While OPEC talked about rising global oil demand that is hardly going to provide support to heating oil in the early Tuesday trade. In fact, OPEC even talked up improving product demand and that seems to be mostly lost on the heating oil market this morning. Expectations for this week’s supplies numbers in heating oil and distillates are calling for an increase of just over 1-million barrels but supply isn’t as important as demand in the current market focus. We see an initial downside target of $2.0851 in the June Heating oil, with even lower support seen down at $2.0795.
TODAY’S ENERGY MARKET GUIDANCE: Back and fill action expected on the downside but not a return of aggressive selling interest.
Energy Market Commentary – 2010.05.11
by Dave Hightower on May 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 opened steady and then took a negative turn during the overnight and early morning US trade action. Outside market influences take top step again as skepticism rains over the EU stabilization plan. Flight to quality bids resurfaced again and that bolstered the US dollar and US Treasury markets, while equities and most physical commodities like crude oil come under attack again. There were many positive factors that surfaced overnight that would otherwise have provided support to crude prices. First was Chinese inflation data that came in above expectations to post new 18-month highs, but there is concern that this could prompt the Chinese central bank to tighten monetary policy by lifting rates. Secondly, China implied oil demand posted its 8th consecutive monthly double digit growth figure and that trend is expected to continue, as factories return to normal operating levels and the Chinese farming season gets into full swing. Chinese refinery crude throughput up 17.1% year over year to a record high of 8.37 Mln bpd in April and that would ordinarily be seen as a very solid demand reading. Echoing that strong demand stance, was data released out of OPEC this morning, that indicated the 3rd consecutive monthly increase in world oil demand by 950,000 bpd, and that is up 50,000 barrels from previous forecasts. Finally, industrial production figures out of the UK blew past street estimates to +2.0% on the month, which is expected to boost UK GDP growth. This further indicates a recovering global manufacturing sector and possible improvements in demand at home and abroad. However, while internal market fundamentals are positive for crude oil prices today, uncertainty about the implementation of the EU debt program have partially escalated again. July crude oil has initially suffered and made a test of Monday’s low trade of 79.21, leaving the next support area at last week’s lows of 77.74. Therefore, the bears have the edge to begin Tuesday’s trade and they are being helped by weak outside market factors.
GASOLINE: The overnight trade in RBOB was lower as outside markets reassess the effectiveness of the EU/IMF stabilization program. Concerns mount over its execution and potential success of that plan, while the root of the problem, surging debt levels remains intact. The US Dollar continues to build on Monday’s bullish turnaround and has made a run for the 85.00 level and that has undermined many physical commodity markets like RBOB. Trade data out of China would normally have a positive influence on the gasoline trade but that news has taken a back seat to the Euro issue. China’s National Bureau of Statistics released output figures for gasoline, which came in down 2.8% on the month, but up 5.5% on the year. Late Monday, the EIA’s weekly survey showed that US gasoline prices averaged $2.91 per gallon, despite last weeks rout in energy markets and we think that highlights the trend in demand and the eventual trend in gas prices. Trade estimates for this week’s inventory data suggest a continued build in gas stocks near 750,000 barrels and that in conjunction with residual outside market negatives and that leaves the bear camp with the edge. Near term downside targeting is seen at $2.1340 basis the June RBOB contract.
HEATING OIL: While OPEC talked about rising global oil demand that is hardly going to provide support to heating oil in the early Tuesday trade. In fact, OPEC even talked up improving product demand and that seems to be mostly lost on the heating oil market this morning. Expectations for this week’s supplies numbers in heating oil and distillates are calling for an increase of just over 1-million barrels but supply isn’t as important as demand in the current market focus. We see an initial downside target of $2.0851 in the June Heating oil, with even lower support seen down at $2.0795.
TODAY’S ENERGY MARKET GUIDANCE: Back and fill action expected on the downside but not a return of aggressive selling interest.
Tags: Crude Oil, Energy, Gasoline, Heating Oil
About Dave Hightower