Crude falls sharply on signs that economic growth in the US and China may be slowing

8.11.10 Filed Wednesday 5:30 pm

ALL CHARTS THIS WEEK ARE Daily Bars

Last Last Week

September Crude 77.47 82.43

September Heat 206.19 220.05

September Gas (Blended) 198.70 217.50

Crude oil fell sharply on Wednesday on signs that economic growth in

the United States and China may be slowing. Oil was lower by more

than 3% on news that China's industrial production fell. Also, oil is

lower in the wake of the Federal Open Market Committee meeting that

occurred on Tuesday. In addition to keeping short-term rates at record

lows, the Federal Reserve stated that they were going to rollover their

existing maturities on various debt paper they are holding in their

portfolio and that they are not looking to exit the market or reduce their

balance sheet. Traders took this to mean that the US economy, in terms

of the Federal Reserve’s assessment, is weaker than previously thought.

Also, China has been attempting to constrain its economic growth for

fear of creating inflationary pressures. Seemingly, it appears that China

has been able to do this. Another negative feature to the market was the

balance of trade number released on Wednesday. The fact that it

unexpectedly widened means that estimates as to US economic growth

will have to be downwardly revised. The United States and China

account for more than 30% of global demand for crude oil and its

products. The next obvious target for nearby crude oil futures is $75

barrel. For the latest reporting week, gasoline supplies rose by 409,000

barrels to 223.4 million barrels. Even though we are still in the driving

season, this is the seventh consecutive weekly gain for gasoline supplies,

a negative. Inventories for distillate fuels also rose by 3.46 million

barrels 273.1 million barrels. This is the highest level since 1983.

Refineries operated at 88.1% capacity, down 3.1 percentage points from

just a week ago which indicates a lack of demand. Crude supplies were

down 2.99 million barrels in line with expectations. At least trading

volumes have picked up. Nymex volume is 12% higher than the average

of the past three months. Given the current structure of the market,

rallies will be sold in crude over the next short term.

Support Resistance

September Crude 75.50 82.50

September Heat 200.00 219.00

September Gas 195.00 211.50

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METALS

Last Last Week

December Gold 1200.4 1197.70

Dec Silver 17.96 18.33

Oct Platinum 1521.8 1583.50

Gold managed to maintain its value last five sessions as the market is

providing a vehicle for the preservation of wealth. Once again, gold is

aligning itself with a stronger dollar theme. Gold is also offering itself as

an alternative to paper assets. Gold is not advancing due to inflationary

pressures. Unemployment remains perniciously in place and economies

are apparently slowing, not expanding. It’s difficult to align gold with

deflationary pressures but that’s probably a likely argument in the

coming days. At the same time, the current structure is not supportive

for silver and copper. If China is closing 2,000 factories, this alone is not

a structural suggestion suggesting increase in copper off-take. Likewise,

to reflect this environment, platinum and palladium were lower for the

seventh consecutive session.

Support Resistance

December Gold 1182.00 1217.50

Dec Silver 17.50 18.50

Oct Plat 1500.00 1564.00

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SOFTS

Last Last Week

September Coffee 170.60 169.75

October Sugar 18.26 18.90

Sugar came off in price due to a stronger dollar and ideas that India

may allow exports. India may produce 22.5 million tons of sugar next

year, up 37% from this year because of improved growing conditions.

Previously, sugar prices at multi-year highs prompted farmers to plant

as much sugar as they could to cash in. If the dollar maintains its

strength over the next 5 to 10 sessions expect to see prices at lower

levels.

Support Resistance

September Coffee 165.50 172.50

October Sugar 17.75 19.50

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Last Last Week

November Soybeans 10.154 10.242

December Corn 4.11 4.15

December Wheat 7.25 7.554

Over the past five sessions, wheat spiked as high as $8.68 per bushel on

panic buying after Russia suspended exports of wheat until the end of

the year. Traders now expect wheat to come off in price because of a

stronger dollar and the idea that there are sufficient global supplies to

offset the suspension of Russian exports. Global stockpiles remain

robust enough to offset the Russian situation, this according to the US

Department of Agriculture. With the Russian exit from the market, US

wheat exports are forecast to jump 24%. The US wheat harvest should

top 61.5 million tons, up from 60.4 million tons last year. Traders

viewed the surge in prices as being too much too soon as global demand

may slow as economies contract.

Corn came under selling pressure as there was speculation that rain will

improve the US crops. 71 percent of the current crop is rated to be in

good to excellent condition. Although psychologically influenced by the

situation in wheat, corn crops are said to be in fantastic shape.

Soybeans could come under selling pressure as China cuts back on

soybean imports. Signs that the Chinese economy is cooling is a negative

for soybean imports.

Support Resistance

Nov Soybeans 10.00 10.40

Dec Corn 4.015 4.21

Dec Wheat 7.05 7.60

Chuck Kespert from NY/NY