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CRUDE OIL MARKET FUNDAMENTALS: March crude oil prices traded down to a new 3-session low during the initial morning hours, which leaves this week’s high of $102.24 as resistance. Early weakness in the crude oil market comes from a rally in the US dollar and slight weakening trend in US equity markets. There appears to be fresh concerns regarding European demand following reports that Swiss refiner Petroplus was putting one of its 5 refineries up for sale, with the prospect of selling two more. The market also appears to have an interest in debt swap talks in Greece, which so far has been a slow and tedious process especially since bondholders are expected to take more than a 60% loss on their investment. Meanwhile, weakness this morning could be tempered by expectations that EU leaders will reach an agreement on an embargo of Iranian oil as early Monday. Recent price action in March crude oil could be seen as a bearish victory in the wake of yesterday’s unexpected crude inventory draw. EIA crude stocks fell 3.438 million barrels, quite different than expectations for a 2.0 million barrel build. While some traders viewed the large 3.7 million barrel gasoline build and fall in demand seemed to offset the large crude inventory decline. EIA crude stocks are 4.52 million barrels below year ago levels but stand 9.09 million barrels above the five year average. One of the key factors behind the surprisingly large draw came from a sharp fall in crude oil imports for the week, down to 8.265 million barrels per day from 9.907 million barrels the previous week. The refinery operating rate was down 1.9% to 83.7%, which compares to 83.0% last year and the five year average of 83.7%. The drop in the refinery rate was partially seasonal as operations begin to prepare for seasonal maintenance. The intermediate price trend continues to favor the bear camp, with downside targeting $98.50. Swing high resistance stands at $103.19.

PRODUCT MARKET FUNDAMENTALS: GASOLINE: March RBOB prices trended lower throughout the overnight and early morning hours as they remained inside of yesterday’s range. It appears that the market is digesting yesterday’s unexpectedly large inventory build in the face of the Hovensa refinery closure. Prices took yesterday’s EIA data that showed a 3.717 million barrels decline in gasoline stocks hard. Current inventory levels are 150,000 barrels below last year but 4.274 million above the five year average. The other negative factor in yesterday’s report was the fall in average total gasoline demand for the past four weeks, which was down 6.1% compared to last year. Gasoline imports came in at 553,000 barrels per day compared to 444,000 barrels the previous week. This week’s price action and advance to the highest level since August 2nd keeps the bull camp in charge. However, further weakness this morning below $2.8097 would be a negative.

HEATING OIL: March heating oil continued to hover around the 200 day moving average during the overnight session ($3.0372), and it also remains trapped inside of yesterday’s range. Prices broke down yesterday in response to EIA inventory data that showed continued weakness in distillate demand. While the weekly stocks figures showed a smaller than expected build of 438,000 barrels, demand from an abnormally warm winter hangs over the market. EIA distillate stocks stand 17.796 million barrels below last year but 189,000 above the five year average. Distillate imports came in at 219,000 barrels per day compared to 163,000 barrels the previous week. Average total distillate demand for the past four weeks was down 4.43% compared to last year. EIA Heating oil stocks fell 2.263 million barrels last week, but the 33.308 million barrel reading is the lowest for this week since 2008. The breakdown in March heating oil prices from last week’s high of $3.1286 continues to respect downtrend channel resistance at $3.0445. The short term price trend favors the bear camp, with targeting below at $2.9580.

TODAY’S ENERGY MARKET GUIDANCE: The crude oil complex has taken a lower track this morning and continues to look to the outside market for direction. The fundamental backdrop is a slight negative for the complex, but geopolitical risks (Iran) and recent boost in risk appetites offer support. February crude oil expires today, and that could be a factor injects an added level of volatility.

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CRUDE OIL MARKET FUNDAMENTALS: While crude oil might be held back by last week’s US inventory readings, the combination of a risk-on vibe and ongoing Iranian saber rattling leaves the bull camp with the edge to start today. In fact, with February crude oil threatening the highest price levels since early December in the early going today, the bull camp looks to have the advantage of the headlines. With Iran calling for the absence of foreign forces in the Gulf and the US apparently signing into law new more specific sanctions against Iran over the weekend, the battle lines appear to be drawn between the two verbal combatants. With the addition of favorable Chinese PMI data and potentially dovish dialogue from Chinese officials, the bull camp would appear to have the fundamental edge to start the holiday shortened week. With supportive currency market action and noted gains in US equities, crude oil and other physical commodity markets are likely to attempt to add to their initial gains. While the EIA crude oil stocks report last week showed an unexpected build, current supplies are still 11.947 million barrels below year ago levels. Part of the build last week came from a notable increase in imports on the week, which jumped to a rate of 8.99 million barrels per day. Another reason for the recent build of crude oil stocks might have come from the closure of the US Houston Channel. The Commitments of Traders Futures and Options report as of December 27th for Crude Oil showed Non-Commercial traders were net long 210,278 contracts, an increase of 5,300 contracts. The Commercial traders were net short 228,605 contracts, an increase of 5,282 contracts. The Non-reportable traders were net long 18,327 contracts, a decrease of 19 contracts. Non-Commercial and Non-reportable combined traders held a net long position of 228,605 contracts. This represents an increase of 5,281 contracts in the net long position held by these traders. We see a very critical pivot point on the charts up at $101.77 in February crude oil, with important support pegged just below the market this morning at 101.05. The bulls have the edge but macro economic information has to stay definitively positive, to actually engineer a sustained upside breakout.

PRODUCT MARKET FUNDAMENTALS: GASOLINE: February RBOB prices have also started the new trading week in a positive track, with prices reaching the highest level since November 9th. It goes without saying that gasoline prices are garnering some support from fears of conflict in the Middle East, but the bulls have added resolve because of a favorable macro economic condition. With EIA inventory data recently showing an unexpected decline in US gasoline supplies and demand views slightly improved overnight, one might suggest that the bull camp has support from both the supply and demand front this morning. We think that recent volatility in ethanol profit margins and the end of the ethanol subsidy is another element that is providing support to gasoline prices over the last several weeks. While many might want to downplay the importance of the end of the subsidy for ethanol, traders should expect to see a noted increase in RBOB price volatility in 2012 because of the potential to periodically idle up 2% to 4% of the US gasoline additive supply chain. The Commitments of Traders Futures and Options report as of December 27th for Gasoline (RBOB) showed Non-Commercial traders were net long 56,048 contracts, an increase of 6,094 contracts. The Commercial traders were net short 63,052 contracts, an increase of 9,810 contracts. The Non-reportable traders were net long 7,005 contracts, an increase of 3,717 contracts. Non-Commercial and Non-reportable combined traders held a net long position of 63,053 contracts. This represents an increase of 9,811 contracts in the net long position held by these traders. Critical support in February RBOB is seen at $2.6780 and resistance is pegged at the 200 day moving average up at $2.7277.

HEATING OIL: Like the rest of the energy complex, February heating oil managed a distinct upside breakout on the charts this morning and in the process the market rose to the highest level since December 13th. Not surprisingly, the ongoing war of words between the US and Iran gave the market part of its upward track today, but prices were also given an added boost by positive macro economic news from both China and the Euro zone overnight. While EIA inventory data recently showed an unexpected build in distillate supplies, inventories were still 20.605 million barrels below last year and 3.448 million barrels below the five year average. It is also possible that slightly colder US temps ahead are providing some minimal support to prices but mild weather so far this winter could require severe cold to actually create a physical shortage of US heating supplies. The Commitments of Traders Futures and Options report as of December 27th for Heating Oil showed Non-Commercial traders were net long 10,850 contracts, an increase of 2,248 contracts. The Commercial traders were net short 22,077 contracts, an increase of 5,399 contracts. The Non-reportable traders were net long 11,228 contracts, an increase of 3,152 contracts. Non-Commercial and Non-reportable combined traders held a net long position of 22,078 contracts. This represents an increase of 5,400 contracts in the net long position held by these traders. Initial resistance in February heating oil is seen up at $2.99 and critical support looks to come in this morning just below the current market at $2.9530. The 200 day moving average in February heating oil today is seen up at $3.0575.

TODAY’S ENERGY MARKET GUIDANCE: The bulls have control to start and with the new sanctions from the US signed into law over the weekend, one might expect to see further reactions from the Iranians. Therefore, oil looks to be supported off geopolitical events, macro economic events and even because of currency market action. In the event that US numbers are positive later this morning and the trade starts to kick around the prospect of positive US payroll data at the end of this week, it is possible that energy prices will claw out a series of gains directly ahead.

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We think that crude oil could be putting in a significant bottom in the wake of the nearly 35% downdraft from the May high. Economic data appears to be stabilizing, suggesting that the early October low was too aggressive in pricing in a slowdown. We would like to take advantage of potential volatility surrounding the European debt crisis/resolution to position for an extended fourth quarter rally.

The crude oil market has faced a number of negative headwinds during the August-October break that were highly correlated to developments out of Europe. Into the third week of October, the EU debt debacle seemed to be closing in on a near term resolution. Due to the tight “risk-on” and “risk-off” link between other assets and crude oil, a favorable result at the October 23rd EU Summit is likely to lift crude oil prices above their 2 « month trading range. However, there is also the possibility that a disappointing result from the EU Summit could weigh on risk assets. What to do?

The global oil supply and demand balance points to a small deficit in the fourth quarter of 2011. October monthly reports from the IEA and OPEC pegged oil demand growth at around 1.0% for 2011 and 1.5% for 2012. The EIA was a bit more optimistic, calling for 2011 demand growth at 1.5%, increasing to 1.6% in 2012. An average estimate among the agencies called for overall 2011 global oil demand to come in at 88.48 million barrels per day, slightly outpacing production by 0.01%. The IEA’s 60 million-barrel release from strategic reserves worked through the system and helped generate a flat balance sheet in the third quarter of 2011. Using the above growth estimates and assuming a modest, 1.25% increase in OPEC production, the world oil balance would likely to show a small, 250,000 barrel-per-day deficit during the fourth-quarter. For comparison, there was a 110,000 barrel-per-day deficit in the first quarter of 2011 that saw WTI crude oil prices average $100.65 and a 500,000 barrel-per-day deficit in the second quarter that came with an average price of $104.21.

Crude oil built a large base of support during its August through mid-October consolidation between $75.00 and $90.00. In the meantime, prices have closed above downtrend channel resistance drawn from the May high, suggesting a turn higher. Meanwhile, after the 18.7% rally in the first half of October, the market has become short term overbought and is hinting at a near term correction. While there’s potential for a decline in December crude oil back toward $82.42 (a 50% retracement), the longer-term prospects target a decline back towards $96.90. For this reason, we recommend buying a December put to play for a shorter term decline and buying a January call to profit from a longer term advance.

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CRUDE OIL MARKET FUNDAMENTALS: November crude oil established a higher high during the early morning hours and climbed back above the $83.00 level. However, a slight pullback in risk appetites, modest profit-taking ahead of today’s September US jobs data and concerns whether this week’s $8.00 rally might be over extended weigh over the market. The price action in November crude oil this week seems to reflect a pullback in fears that the global economy would fall back into a recession, and that leaves this morning’s jobs data as a factor that needs to meet or beat expectations to drive the market higher. Confirmation of US jobs added above the 75,000 level is likely to open the door for November crude oil toward the $85.00 to $87.00 area. In the meantime, there was more chatter out of Iran this morning indicating that most OPEC members would likely leave OPEC production targets unchanged at their December meeting. There were also reports out of Russia overnight indicating that oil refiners in the region might not be able to survive export duty reforms “if” they do not modernize. That is a longer term factor for the market, but something that could gain more traction in the weeks ahead. There has also been talk that index fund rebalancing for 2012 could see weightings on US WTI crude oil to fall and increase for Brent crude oil. While this is a factor that could put downside pressure on US crude prices, a lot can happen in the current environment in 2.5 months. The short-term trend in November crude oil has turned in favor of the bull camp with yesterday’s gains, leaving support at $80.51. Upside resistance comes in at $83.98, then $84.77.

GASOLINE: November RBOB prices have taken a lower track this morning, as they retraced a portion of yesterday’s explosive rally. It seemed that the combination of European financial leaders trying to come to a resolution for struggling regional banks, as well as a risk-on appetite supported the early gains. It also seemed that the relative outperformance of RBOB to its peers in the crude oil complex reflected something more fundamental taking place. Cash gasoline markets in the Northeast yesterday traded higher, bolstered by fears of tightening supply from recent refinery outages and slight uptick in demand. This is expected to continue over the short-term, as a couple of Pennsylvania refineries remain offline. The technical action in November RBOB closed above its late-September swing high of $2.4669, and that provides the bull camp with an intermediate term edge. Short-term support ratchets up to $2.5645.

HEATING OIL: November heating oil prices established a higher high this morning, marking a $0.17 rally from this week’s low of $2.6975. The gains in heating oil appear to be the result of an improving outside market tone, rally in global equity markets and ideas that the global economy might be on a recovery track. It’s possible that the US heating oil market drafted a level of support following inventory data from the Amsterdam-Rotterdam-Antwerp (ARA) storage hub that showed gasoil inventories plunging to their lowest level in 18 months. The short-term price action in November heating oil turned positive during yesterday’s rally and satisfied near-term technical targets at $2.8648. The next level of resistance comes in at last week’s highs of $2.8970. Short-term support this morning comes in at $2.8350, then this week’s swing low at $2.7530.

TODAY’S ENERGY MARKET GUIDANCE: The crude oil complex has taken a lower track heading into this morning’s key economic data on the US labor market. A portion of this week’s explosive rally have come as the market has begun to price in a modest rebound in economic conditions, which leaves this morning’s report as a key determining factor. Market expectations are for September US Nonfarm Payrolls to have increased somewhere in the range of 50,000 to 75,000, and the market probably needs to see something north of 75,000 to extend this week’s gains. Markets across the crude oil complex have become short-term overbought and vulnerable to disappointment.

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CRUDE OIL MARKET FUNDAMENTALS: November crude oil made an overnight drive below the $80 level and has since rallied nearly $3.00. It appears that the upside reversal action was fueled by a rally in global equity markets and gains in the Euro currency. The German parliament approved power changes in the Eurozone bailout fund, and that is seen as a positive step toward resolving the European debt crisis. This progress has boosted risk appetites and provided a level of support for risk assets like crude oil, and with the tight correlation between crude and equities, it is possible to see more upside follow through this morning. November crude oil has recouped some of the disappointment from yesterday’s larger than expected EIA inventory build. EIA crude stocks rose 1.915 million barrels, but they remain 16.897 million barrels below year ago levels. Also, crude stocks stand 12.842 million barrels above the five year average. Crude oil imports for the week stood at 9.702 million barrels per day compared to 8.351 million barrels the previous week. The refinery operating rate slipped 0.5% to 87.8%, which compares to 85.8% last year and the five year average of 84.01%. There were reports earlier this morning indicating that a key Singapore refinery has experienced another fire, and that has reduced capacity around 350,000 barrels per day. This could be a factor that tightens up the market in the region and provide an added level of support this morning. Talk of a potential strike at a French refinery appears to have been resolved overnight and production has returned back to normal levels. The technical action in November crude oil turned negative with yesterday’s action, but appears to be stabilizing. We see an upside pivot level for November crude oil at yesterday’s midpoint of $82.56. A further advance above that level this morning would set the stage for a further push toward $83.80.

PRODUCT MARKET FUNDAMENTALS: GASOLINE: November RBOB prices broke down below yesterday’s inside day trading range last night but has since turned back into positive territory. A rebound in crude oil prices, weakness in the US dollar and improvement in risk attitudes this morning have helped inspire the turn higher. Yesterday’s EIA weekly gasoline stock report showed an increase of 791,000 barrels, which was slightly below expectations. Meanwhile, current inventories are 7.723 million barrels below last year, but 10.854 million above the five year average. Average total gasoline demand for the past four weeks was down 2.43% compared to last year. Gasoline imports came in at 541,000 barrels per day compared to 692,000 barrels the previous week. Upside reversal action in November RBOB this morning favors the bull camp for a further advance to $2.6450. There is downside support at the September 27th gap of $2.5441 to $2.5284.

HEATING OIL: November heating oil prices broke down to a new three session low overnight that challenged Tuesday’s gap support at $2.8025. The market was able to rebound from that level, helped in part by a positive turn in risk sentiment and US Dollar weakness. Another positive force offering support in the distillate market comes from an increase in diesel demand from the agricultural sector. Wednesday’s EIA report showed distillate stocks rose 72,000 barrels, which was quite a bit less than expected. This brought current inventory levels to 15.911 million barrels below last year, but 6.656 million above the five year average. Distillate imports came in at 150,000 barrels per day compared to 158,000 barrels the previous week. Average total distillate demand for the past four weeks was down 1.04% compared to last year. EIA heating oil stocks fell 770,000 barrels and are 11.555 million barrels below last year. The upside reversal action this morning favors the bull camp and points to a test of yesterday’s high at $2.8970.

TODAY’S ENERGY MARKET GUIDANCE: The crude oil complex extended yesterday’s late day sell-off into the overnight session, but has reversed those losses this morning. The crude oil complex faces a number of catalysts this morning, including a decision by European auditors to approve another round of aid for Greece and a final reading on US Q2 GDP. The complex remains vulnerable to headline risk. A weaker than expected read on this morning’s GDP number has the potential to ignite global recession concerns and pressure energy markets down toward last week’s low.

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CRUDE OIL MARKET FUNDAMENTALS: The crude oil market extended yesterday’s declines overnight with a move to its lowest level since putting in its low on August 9th. Growing concerns that the US is slipping into another recession and anxiety over bank troubles in Europe sparked a steep sell-off in global equity markets yesterday, and this continued in the overnight session, pressuring economically sensitive commodity markets like crude oil. It appears that the economic news will be the dominant force on the energy markets again today, particularly if stock market sell-off builds into a full-fledged rout today. The EIA report from earlier this week showed a larger-than-expected build in crude oil stocks, so the supply stats are running bearish as well. President Obama’s announcement yesterday of additional sanctions against the Syrian oil industry is not expected to have a significant effect on the energy market because the US does very little business with that country anyway. The question is whether Europe will toughen its sanctions, and the EU is supposed to be considering that today. Libyan rebels have reportedly seized the last refinery that was held by pro-Gadhafi forces without damaging the refinery at all and that is bearish to prices. This news is probably a little bearish, especially to Brent crude, because it could ease some anxiety over Libyan oil supplies to Europe. After the sharp break yesterday and overnight, October crude oil is coming close to testing the August 9th spike bottom. Key support comes in at the August 9th close of 79.67 (which it already tested overnight) and at the low of 76.15 from that same day.

GASOLINE: The gasoline market is also feeling the pressure from outside market forces, but not quite as severely as crude oil, perhaps because of the supportive EIA stocks data earlier this week, which appears to leave a fundamental underpin to the market. Like crude oil, gasoline continued yesterday’s sell off overnight as global economic concerns put pressure on a wide range of “risky” assets like equities and energies. But the break so far has been mild relative to crude oil, as October RBOB was still more than 17 cents per gallon above the August 9th spike low overnight. This week’s EIA data showed a much larger than expected inventory draw for gasoline, with stocks falling 3.510 million barrels to 13.263 million barrels below year ago levels. Retracement support for October RBOB at $2.6103 and $2.5722 could be tested if equity markets continue to sell off today.

HEATING OIL: October heating oil was also under pressure from outside market forces overnight, as sharply lower equity markets in Asia and Europe put pressure on the energy complex as a whole. Still, the heating oil/distillate end of the complex appears to be holding up better than crude oil, perhaps because the market is in a stocks-building phase ahead of the heating season, which is keeping a fundamental underpin to prices. This week’s EIA data showed distillate stocks rising more than expected, with a build of 2.449 million barrels, but again, that is not too concerning to the market because one would expect them to be increasing at this time of year anyway. Average total distillate demand for the past four weeks was up 5.80% compared to last year. EIA heating oil stocks rose 651,000 barrels and are 11.219 million barrels below last year. Like RBOB, October heating oil has a way to go before it tests the August 9th spike low at $2.7154. Retracement support comes in at $2.6268, with additional support down at $2.7763. Trend line resistance is back up at $2.9423.

TODAY’S ENERGY MARKET GUIDANCE: The crude oil complex will start today’s session under pressure from a diminished economic outlook and other outside market pressure which is raising concerns over future energy demand and is also contributing to a sell-off in risky assets. If the outside market pressure continues today, look for October crude oil to test the August spike lows and for the products to fall under pressure as well.

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CRUDE OIL MARKET FUNDAMENTALS: A weak outside market tone and stronger US Dollar weigh on the crude oil prices to start this morning. The Bank of Japan intervened into the currency markets last night by selling nearly $13 billion in Yen, and that has sparked a sharp upside reversal in the US dollar. Growing concerns about slowing economic growth in the US present the crude oil market with another negative. Another major global bank lowered their world oil demand figures due to the current economic slowdown in the US. This particular company lowered their 2011 increase in demand by about 30.0% to a rate of 88.7 million barrels per day. What is important about their downward revision is that it is likely to follow more downward revisions by other forecasters and government agencies. Yesterday’s EIA inventory data showed US crude stocks rose 950,000 barrels last week, which was in line with expectations. Some traders viewed the minimal build in the wake of a 4.5 million barrel draw in SPR supplies as a slight positive. EIA crude stocks are 3.005 million barrels below year ago levels, but 19.504 million barrels above the five year average. There was a rather notable decline in crude oil imports of more than 7.0% to 9.134 million barrels per day. The refinery operating rate was 89.3%, up 1.0% from last week, and compares to 91.2% last year and the five year average of 89.12%. September crude oil established a new low for the decline in the early morning hours and is on track to challenge the June lows of $90.17. At the same time, this week’s nearly $8.00 slide has created a short term oversold condition, vulnerable to a short covering rally. Short term resistance comes in for September Crude oil at $92.05.

GASOLINE: September RBOB prices are off more than 8.0% from this week’s high to this morning’s low. Prices plunged out of the recent four week trading to the downside yesterday, and they have extended their decline during the early morning hours. September RBOB finished Wednesday’s session down by more than 3.5% after EIA inventory data showed a larger than expected weekly increase of 1.701 million barrels. EIA gasoline stocks are 7.795 million barrels below last year, but 4.038 million above the five year average. Average total gasoline demand for the past four weeks was down 3.63% compared to last year, and it is the lowest reading for the summer season. The weakness in gasoline demand was seen as a primary catalyst for the downdraft. Gasoline imports came in at 845,000 barrels per day compared to 662,000 barrels the previous week. The higher refinery capacity rate seen last week was also viewed as another negative headwind for the gasoline market that is likely to keep the market well supplied. The edge goes to the bear camp, with the next downside support coming in at the July 1st low of $2.8675.

HEATING OIL: September heating oil prices continued their slide overnight, falling to their lowest level since July 7th. Yesterday’s price action confirmed a breakdown out of recent congestion and puts the edge in favor of the bears. The heating oil market sold-off sharply in the wake of yesterday’s EIA inventory data that showed a rise in distillate supplies of 409,000 barrels. EIA distillate stocks stand at 17.432 million barrels below last year, but 7.364 million above the five year average. Distillate imports came in at 205,000 barrels per day compared to 161,000 barrels the previous week. Average total distillate demand for the past four weeks was up 1.69% compared to last year. The soft demand reading in distillates was seen as a key factor behind breakdown. EIA heating oil stocks rose 896,000 barrels and are 12.770 million barrels below last year and 7.584 million below the five year average. September heating oil has gap support below at $2.9926 to $2.9791, with targeting below at $2.96.

TODAY’S ENERGY MARKET GUIDANCE: A rally in the US Dollar, economic growth concerns and sluggish demand readings continue to weigh over the crude oil complex. September crude oil appears to be looking for a new value range as it challenges its June lows of $90.17. It is possible that the decline has run ahead of itself in the short term and vulnerable to a technical rebound. The bears are in charge in the product markets and have finally confirmed a breakdown out of the very tight coiling range.

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CRUDE OIL MARKET FUNDAMENTALS: August crude oil challenged last week’s low during the early morning hours, which was able to contain early weakness. Concerns over slowing economic growth in the US and China along with the potential of the IEA releasing more supplies on to the market continue to weigh on prices. Brent crude oil prices have led to the downside in recent sessions, and that appears to be the case again this morning. The market seems concerned over the upcoming Greek austerity vote, and some traders suggest that Brent could slip further toward the $100 level. August Brent crude oil slipped into new low ground this morning and challenged its 200 day moving average of $102.25 before rebounding. The weakness in Brent crude oil tightened the differential to WTI back below $13.00. Meanwhile, Iran’s oil minister noted concern over the IEA’s decision to release supplies and added that supply and demand fundamentals in the crude oil market were functioning correctly. It also seems that Libyan rebels are making progress against Gaddafi forces, and prospects that the leader could be overthrown and oil production restored could present the market with even more supply. The Commitments of Traders Futures and Options report as of June 21st showed non-commercial traders were net long 199,077 contracts, a decrease of 22,649. Non-commercial and nonreportable traders combined held a net long position of 229,876 contracts, a decrease of 24,408 on the week. This long liquidation trend by the speculators has taken their net long position to the levels not seen since the 4th quarter of 2010. Money managers cut their long positions to the lowest level since December. It is possible that crude oil could face added liquidation pressure if economic conditions continue to deteriorate. The bear camp has the early morning advantage, but its inability to break below Friday’s low of $89.82 might open the door for a corrective rebound. The bulls need to at least overcome the $91.20 level to turn the tide in their favor.

PRODUCT MARKET FUNDAMENTALS: GASOLINE: August RBOB established a new low for the move overnight and closed in on its 200-day moving average of $2.66. Prices managed to rebound during the early morning hours, helped by weakness in the US Dollar and rebound in global equity markets. The weakness in Brent crude oil relative to WTI crude oil continues to offer RBOB prices another negative headwind to work through. August RBOB prices finished the week with a plunge down to their lowest level since February 18th. However, weekend reports of a refinery flaring at a 360,000 barrel per day operation in Illinois could be a supportive feature situation during today’s session on reports that it could be down for a longer period of time. The Commitments of Traders Futures and Options report as of June 21st showed non-commercial traders were net long 54,161 contracts, a decrease of 7,284. The Commercial traders were net short 58,603 contracts, a decrease of 10,279. The Nonreportable traders were net long 4,443 contracts, a decrease of 2,993. Non-commercial and nonreportable traders combined held a net long position of 58,604 contracts, for a decrease of 10,277 in their net long positioning. The long position remains at relatively lofty levels, which leaves potential for more long-liquidation. The bear camp has the edge to start this morning, with resistance above at $2.7370 and support below at $2.66.

HEATING OIL: August heating oil prices slid down to their 200-day moving average during the early morning hours, but so far it has been able to rebound. This took the August contract down to its lowest level since February 8th. The Commitments of Traders Futures and Options report as of June 21st showed non-commercial traders were net long 25,258 contracts, a decrease of 10,642. The Commercial traders were net short 37,607 contracts, a decrease of 12,431. The nonreportable traders were net long 12,349 contracts, a decrease of 1,790. Non-commercial and nonreportable traders combined held a net long position of 37,607 contracts, a decrease of 12,432 during the week. The bears maintain the early advantage, but that would begin to change on a move above $2.7850. The short term down trend pattern remains intact till prices can overtake $2.8340 today.

TODAY’S ENERGY MARKET GUIDANCE: The crude oil complex has been able to rebound from its worst overnight levels, but remain in negative territory. Markets are keying in on this morning’s flow of US economic data on Consumer Spending and Chicago Manufacturing for demand clues. Further disappointment in this morning’s number could prompt some economists to ratchet down their growth outlooks. Meanwhile, the short term trends across the complex favor the bears.

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CRUDE OIL MARKET FUNDAMENTALS: July crude oil prices traded in a sideways fashion during the overnight and initial morning hours, following yesterday’s wide-range bearish reversal. The plunge in prices down to the lowest level since February 18th has begun to usher in more concerns over demand. The outside market tone is slightly negative, with weaker global equity markets and a rally in the US dollar to a new 3-week high. It also seems that the crude oil’s price direction is highly dependent to risk appetites and the unfolding Greek debt situation. The IEA made the news wires early this morning indicating that they were prepared to release strategic reserves of crude oil to support the global economy if needed. While they raised their demand forecasts for the next 5-years by an annual rate of 1.3%, they continue to monitor Saudi Arabia’s contribution of added supplies to satisfy current demand levels. For now, July crude oil is trying to consolidate recent losses, while it measures whether current economic slowdown fears will impact demand in the second half of 2011 and whether prices should be at a lower level. Yesterday’s EIA report showed a larger than expected decline of 3.406 million barrels. Perhaps a portion of the unexpectedly larger draw came from the closed Keystone Pipeline last week, which helped draw 1.0 million barrels out of Cushing. EIA crude stocks stand 2.45 million barrels above year ago levels and 21.923 million barrels above the five year average. Crude oil imports for the week stood at 8.638 million barrels per day, compared to 8.600 million barrels the previous week. The refinery operating rate was 86.1%, down 1.1% from last week. There was heavy volume during Wednesday’s down draft that rivaled levels seen during the early May slide, suggesting that the crude oil market could be fishing for a near term bottom. The short term trend in July crude oil favors the bear camp, with downside support below at $94.45, then the February low of $93.10.

PRODUCT MARKET FUNDAMENTALS: GASOLINE: July RBOB traded higher during the early morning hours after a negative wide-range reversal Wednesday. Yesterday’s action shifts sentiment back in favor of the bear camp after prices plunged to its lowest level since May 24th. Yesterday’s EIA gasoline stocks report showed a build of 573,000 barrels, which was slightly under consensus estimates. Gasoline stocks are 3.275 million barrels below last year, but 5.254 million above the five year average. Average total gasoline demand for the past four weeks was up 0.50% compared to last year. Gasoline imports came in at 1.115 million barrels per day compared to 1.158 million barrels the previous week. While there was talk of tightening supplies in the cash market due to the slide in imports, the weak outside market tone seemed to prevail. The bear camp has the edge after Wednesday’s negative trade, with support today coming in at $2.9235.

HEATING OIL: July heating oil began the overnight trade with a higher open, but has since leaked most of those gains. Wednesday’s EIA distillate stocks report showed a 105,000 barrels draw, instead of an expected build. The report showed a rather large decline in Midwest supplies, which was attributed to a boost in agricultural demand after a delayed start to planting. EIA distillate stocks stand at 15.801 million barrels below last year, but 6.737 million above the five year average. Distillate imports came in at 125,000 barrels per day compared to 155,000 barrels the previous week. Average total distillate demand for the past four weeks was down 3.57% compared to last year. EIA heating oil stocks rose 1.317 million barrels. Weak distillate demand highlighted in the EIA report is a concern that might not justify prices above the $3.00 level. Wednesday’s downdraft leaves the bear camp with the short term advantage. Near term support stands at yesterday’s low of $2.9702, then the $2.9500 level.

TODAY’S ENERGY MARKET GUIDANCE: The crude oil complex is off to a positive start after suffering major declines during yesterday’s session. The short-term price trend across the complex favor lower pricing ahead. While there appears minor evidence of bargain hunting this morning, the risk to the market is if higher demand levels are not seen later in the year. This is a factor that would support $85 to $90 per barrel crude oil. There is an active flow of US economic data this morning and there will be a great deal of attention paid to the Greek debt situation.

This content originated from - The Hightower Report.