Crude rallies on Wednesday after several weeks of nose bleeding sessions

05.26 Filed Wednesday 5:45 pm

ALL CHARTS THIS WEEK ARE Daily Bars

Last Last Week

July Crude 70.75 72.87

July Heat 192.39 196.69

July Gas (Blended) 195.17 201.45

The oil market actually rallied on Wednesday night despite a severe

decline in US equity markets and a very strong dollar, particularly

against the EC. Crude oil rallied the most since last September after the

regularly scheduled Department of Energy report showed a surprisingly

strong increase in fuel consumption. Also, durable goods orders rose

greater than expected, indeed actually rose for the fourth time in five

months. This indicated to market observers that the manufacturing

sector is gaining strength and with it an increased appetite for oil.

Crude oil was up by nearly 4% at its best levels of the day, the biggest

one-day increase since September 30. Many oil traders however left the

market before the decline in equities really got underway in late

afternoon trade at Wall and Broad. Concern still is concentrated on

Europe and the possibility of an economic contraction due to the

burgeoning currency crisis. China said it would probably scale back its

investment in European debt due to the current situation. Just recently,

a run of dollar strength inspired a 20% drop in the price of crude oil.

Another positive was an increase in the expectation for world economic

growth by the Organization for Economic Cooperation and

Development or OECD. The Energy Department said the crude demand

grew by 1.7% to 19.5 million barrels a day over the last four weeks.

Demand for distillate fuel including diesel and heating rose to its best

level since March of 2001. Inventories at Cushing, Oklahoma, the hub

for the benchmark West Texas intermediate which is traded on the

Nymex, actually declined from record levels in the latest reporting

week. It was the first such decline in supplies in 10 weeks. Gasoline

supplies were lower by 203,000 barrels to 221.6 million barrels. This is

the third consecutive weekly decline for gasoline stocks. The summer

driving season is set to get underway at the end of May with the

observance of Memorial Day weekend. Money flow in crude oil

remains negative, however. Money flow in heating oil remains negative.

Money flow in gasoline also remains negative. Crude oil should have a

belated reaction to new lows made by the EC during Thursday's trade.

Support Resistance

July Crude 66.80 72.50

July Heat 185.00 195.00

July Gas 191.50 200.00

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METALS

Last Last Week

June Gold 1211.60 1191.40

July Silver 18.08 18.21

July Platinum 1522.0 1604.00

As the euro currency fell in value, gold rose in price during trade on

Wednesday. The dollar gained against the EC as German consumer

confidence fell greater than expected. Gold has attracted buyers as

concern continues to be expressed about the EC and its future. The

Euro is down 15% for the year against the dollar. Money has flowed

from the EC into the dollar and US debt instruments as well as gold

over the past several weeks. Continued weakness in US equity markets

and high degrees of volatility have inspired more investors to park

money in gold until visibility improves. You'll notice by just looking

quickly above that although gold is higher against its price a week ago

Silver is actually lower as is platinum. Money flow in gold is positive.

Money flow in silver is negative. Money flow in platinum is negative.

Support Resistance

June Gold 1187.00 1230.00

July Silver 17.30 19.25

July Plat 1475.00 1550.00

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SOFTS

Last Last Week

July Coffee 133.90 132.80

July Sugar 15.27 15.08.

Coffee managed to rally in price in New York-based trading to its

highest level in more than a week. The reason for the advanced was

tight supplies and signs of better growth in emerging markets. Vietnam

reportedly exported 10% less last month than forecast so supply/

demand considerations tilt in favor of demand outstripping supply

creating classical price pressure. Also, Brazil exported 10% less last

month than previously reported. Money flow in coffee remains positive

due to weather considerations and inelastic demand.

Sugar also managed to maintain some traction even as other markets

faltered. Signs of rising demand have been a positive. Action in the cash

market has been positive with buyers active and producers reluctant to

hedge. Importers are said to be replenishing depleted stocks. Some in

the trade are looking for an advance to 18.00 by the third quarter on

improved economic tone.

Support Resistance

July Coffee 130.00 135.00

July Sugar 14.25 16.00

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Last Last Week

July Soybeans 9.38 9.384

July Corn 3.714 3.592

July Wheat 4.616 4.914

Better demand from China allowed soybeans to maintain a steady price

over the past week. Also the OECD upward revision to growth

prospects for emerging countries such as China, the largest buyer of

sugar in the world, helped support price. Higher prices for crude oil on

Wednesday also helped soybeans from a bio fuel perspective. The major

negative lurking in the shadows continues to be the strengthening dollar

against most major foreign currencies. A stronger dollar makes US

soybeans that much more expensive to export. China is said to be on

schedule to import 46 million tons of soybeans from all suppliers up

from 43.5 million tons just forecast one month ago. Money supply in

soybeans is negative, however. Money supply in corn is positive. Money

flow in wheat is decidedly negative.

Support Resistance

July Soybeans 9.20 9.464

July Corn 3.57 3.75

July Wheat 4.505 4.715

Chuck Kespert from NY/NY