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CRUDE OIL MARKET FUNDAMENTALS: Advancements on US financial reform overnight might remove some anxiety from the marketplace but apparently euro debt fears are set to captivate markets and weigh further on crude oil prices. In fact, with global equity markets trading lower after a favorable German vote on the $1-Trillion Euro backstop plan, it would not seem like anyone is looking for positives in this market. Crude oil remains in a vulnerable status as it attempts to reconcile future supply and demand. Increased potentials of a further economic slowdown helps explain the massive liquidation seen recently. Open interest in crude oil lost over 100,000 contracts on Tuesday & Wednesday which suggests the reduction in extreme net long spec positions (long 201,286 as of 5/11/2010) is taking place. Late Thursday, the market saw more private forecasts of burdensome US crude inventories at Cushing and that has to give the bear camp confidence to press prices even further. July Crude had an outside day down, with a very weak close yesterday that should leave the market capable of a slide toward the July 2009 lows of $66.11. Intra market spreads have narrowed +$1.50 during the last week indicating the -6.3% plunge in crude prices may have normalized part of the oversupply issue and “eventually” that might pave the way for a good value play to buy crude oil. In short, looming Euro debt uncertainty remains the primary driver of trade and that adds further risk premium selling to the trade. It might take some type of surprise statement from outside of the EU/IMF or a massive coordinated currency intervention to provide any meaningful bounce in crude oil prices
PRODUCT MARKET FUNDAMENTALS: GASOLINE: Negative macro issues continue to hamper RBOB and even with the market closing in on downside technical price targets, there doesn’t seem to be cause to pick a fundamental low yet. For now, the trend remains down in July RBOB, with support seen at 1.8950. While demand hopes might try to gain some traction off news that AAA forecasts US Memorial day travel to increase by +5.4% compared to 2009 levels, the big picture macro economic news is so negative that minor demand side news is going to be largely discounted. AAA pointed to an improving US economic recovery as the motivating factor behind their increased demand forecast but most markets are unwilling to accept ongoing recovery in the face of the European turmoil. European gasoline remains weak on the back of weak crude prices and lack of arbitrage opportunities to export to US, merely serves to slow the washout in US prices.
HEATING OIL: The demand story remains front and center as the Euro area debt fears take their toll on global recovery prospects. July heating oil so far has been unable to take out its February lows at 1.8750, making it the “less bad” leader in the US in the energy complex. The trend remains down with support below at 1.8904. Thursday’s slide satisfied downside price objectives of 1.8890 created by May’s decline but we don’t see a fundamental reason to play for a low yet. Traders need to see some type of major financial market event like coordination to play for a low.
TODAY’S ENERGY MARKET GUIDANCE: Fears of weak demand and burdensome supply evidence leaves the bear camp with all the cards.
Energy Market Commentary – 2010.05.21
by Dave Hightower on May 21, 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: Advancements on US financial reform overnight might remove some anxiety from the marketplace but apparently euro debt fears are set to captivate markets and weigh further on crude oil prices. In fact, with global equity markets trading lower after a favorable German vote on the $1-Trillion Euro backstop plan, it would not seem like anyone is looking for positives in this market. Crude oil remains in a vulnerable status as it attempts to reconcile future supply and demand. Increased potentials of a further economic slowdown helps explain the massive liquidation seen recently. Open interest in crude oil lost over 100,000 contracts on Tuesday & Wednesday which suggests the reduction in extreme net long spec positions (long 201,286 as of 5/11/2010) is taking place. Late Thursday, the market saw more private forecasts of burdensome US crude inventories at Cushing and that has to give the bear camp confidence to press prices even further. July Crude had an outside day down, with a very weak close yesterday that should leave the market capable of a slide toward the July 2009 lows of $66.11. Intra market spreads have narrowed +$1.50 during the last week indicating the -6.3% plunge in crude prices may have normalized part of the oversupply issue and “eventually” that might pave the way for a good value play to buy crude oil. In short, looming Euro debt uncertainty remains the primary driver of trade and that adds further risk premium selling to the trade. It might take some type of surprise statement from outside of the EU/IMF or a massive coordinated currency intervention to provide any meaningful bounce in crude oil prices
PRODUCT MARKET FUNDAMENTALS: GASOLINE: Negative macro issues continue to hamper RBOB and even with the market closing in on downside technical price targets, there doesn’t seem to be cause to pick a fundamental low yet. For now, the trend remains down in July RBOB, with support seen at 1.8950. While demand hopes might try to gain some traction off news that AAA forecasts US Memorial day travel to increase by +5.4% compared to 2009 levels, the big picture macro economic news is so negative that minor demand side news is going to be largely discounted. AAA pointed to an improving US economic recovery as the motivating factor behind their increased demand forecast but most markets are unwilling to accept ongoing recovery in the face of the European turmoil. European gasoline remains weak on the back of weak crude prices and lack of arbitrage opportunities to export to US, merely serves to slow the washout in US prices.
HEATING OIL: The demand story remains front and center as the Euro area debt fears take their toll on global recovery prospects. July heating oil so far has been unable to take out its February lows at 1.8750, making it the “less bad” leader in the US in the energy complex. The trend remains down with support below at 1.8904. Thursday’s slide satisfied downside price objectives of 1.8890 created by May’s decline but we don’t see a fundamental reason to play for a low yet. Traders need to see some type of major financial market event like coordination to play for a low.
TODAY’S ENERGY MARKET GUIDANCE: Fears of weak demand and burdensome supply evidence leaves the bear camp with all the cards.
Tags: Crude Oil, Energy, Gasoline, Heating Oil, RBOB
About Dave Hightower