Massive crude oil supply, but falling US dollar pushes crude higher

Weekly Futures Report

06.04.09

Filed 12:23 am Thursday     

                                                       Last                                            Last Week   

July Crude                                 66.30                                                  63.45

July Heat                                     174.25                                             158.83

July XRB (Blended Gas)           177.00                                              169.80

On Wednesday, crude oil fell immediately in price after the Department of Energy released its weekly supply and demand figures. The report showed an unexpected gain in US supplies. At the same time, the dollar was gaining strength against other major foreign currencies. For the past 2 1/2 years there has been a very high correlation between the dollar and oil. By some means of measurement, the dollar and crude oil have moved in the same direction roughly 82% of the time. As for the report, the DOE stated that inventories climbed by 2.9 million barrels to 366 million barrels for the latest reporting week. These gains occurred as imports surged and refineries increased operating runs. Also, there was the belief that OPEC had actually increased production to try and take advantage of recent high prices. Refineries last week ran at their highest levels over the last six months. Some fundamentalists immediately claimed that current high inventories and weak demand coupled with higher prices would destroy demand to some degree and not justify crude oil trading at recent highs. By midmorning, crude oil was down 2.6%. Initially traders have been looking for the DOE report to show that stockpiles had fallen by 1.5 million barrels. To learn that they had actually increased caught many on the wrong side of the market and introduced a serious wave of profit-taking. Daily US fuel oil consumption averaged 18.2 million barrels over the past four weeks down 7.7% from last year at this time. The Department of Energy report was in stark contrast to yesterday's release of the American Petroleum Institute report which showed that stockpiles had fallen by 828,000 barrels. The crude oil market should come under continued profit-taking going into Friday's key unemployment number.

           

                                          

                                                                Support                                     Resistance

July Crude                                             64.15                                               68.80 

July Heat                                               162.00                                            180.50

July Gas                                                 183.00                                             198.00                                                                                                        

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METALS

                                                                     Last                                              Last Week     

Aug Gold                                               965.6                                                955.20

July Silver                                              15.31                                                  14.76 

July Platinum                                       1238.9                                             1138.00            

Gold fell sharply on Wednesday as the dollar strengthened against major foreign currencies. Going into the session, the dollar was trading at a five-month low against the European currency. Oil fell sharply on Wednesday as the Department of Energy showed an increase in supplies as opposed to the market’s expectation for a drawdown. As mentioned above, over the past several years there has roughly been an 82% correlation between the price of oil and the dollar. Gold had been powering higher over the past five sessions based on a commodity sector rally. But, it seems as though the currencies got ahead of themselves and a series of profit-taking waves hit most commodity markets Wednesday. It's not a full-blown reversal; at least the next five days should provide a period of consolidation.

                                                             Support                                      Resistance

Aug Gold                                             951.0                                            995.00

July Silver                                            14.68                                          16.20                   

July Plat                                               1176.00                                       1251.00

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SOFTS

                                                                       Last                                     Last Week

July Coffee                                                  138.35                                        135.50

July Sugar                                                    14.89                                           15.77

Coffee futures fell for the first time in four sessions on Wednesday. Speculation that supplies of Brazilian beans may be enough to offset the deficit seen in the harvest of Colombian beans. Brazil's coffee crop is the world's largest. The Brazilian harvest is expected to be 18% smaller than last year at this time. Producers are encouraged by the size of the Brazilian crop.

 

Sugar futures fell the most in two months on signs that supplies are increasing from Brazil. This development plus also the demand destruction from higher prices was able to trigger profit taking. The Brazilian harvest is in much better shape than previously thought. As prices surged in sugar, momentum slowed. Sugar is still up 26% for the year.

                                                                    Support                                   Resistance

July Coffee                                                    133.00                                      143.20           

July Sugar                                                      14.80                                        16.00

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                                                                 Last                                    Last Week

 July Soybeans                                  11.82                                              11.87

July Corn                                          4.324                                               4.260

July Wheat                                       6.174                                             5.972

Soybeans fell on speculation that the highest prices seen over the past eight months will eventually curb demand for supplies in the US. Soybeans have been up 28% over the past two months thanks to increased imports by China. The price of soybeans has rallied 20% over the past two months. Partially this is due to the weaker dollar and also the idea that the worst of the recession may be behind us.

 

Corn prices had been higher on the idea that the late planting of the crop due to wet weather will mean that farmers will move from corn to soybeans. About 93% of the US corn crop is in the ground. The five year average at this time of year suggests that 97% of the crop should be in the ground. Because of weather related delays, farmers are expected to plant a couple of million acres less than they ordinarily would. The lack of warm weather in the Midwest is starting to become a concern. Going into Wednesday's trading session, corn and soybeans were at eight months highs and extremely overbought.

About 89% of the spring wheat crop was in the ground compared to the past five year average of 98%. Even soybeans were late as 66% of the planting was complete compared to a five year average of 79%.                      

                                                           Support                                    Resistance

July Soybeans                                     11.28                                          12.28

July Corn                                             4.26                                            4.46

July Wheat                                           5.85                                            6.72

Chuck Kespert

HYPOTHETICAL PERFORMANCE RESULTS HAVE MANY INHERENT LIMITATIONS, SOME OF WHICH ARE DESCRIBED BELOW. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN. IN FACT, THERE ARE FREQUENTLY SHARP DIFFERENCES BETWEEN HYPOTHETICAL PERFORMANCE RESULTS AND THE ACTUAL RESULTS SUBSEQUENTLY ACHIEVED BY ANY PARTICULAR TRADING PROGRAM.

ONE OF THE LIMITATIONS OF HYPOTHETICAL PERFORMANCE RESULTS IS THAT THEY ARE GENERALLY PREPARED WITH THE BENEFIT OF HINDSIGHT. IN ADDITION, HYPOTHETICAL TRADING DOES NOT INVOLVE FINANCIAL RISK, AND NO HYPOTHETICAL TRADING RECORD CAN COMPLETELY ACCOUNT FOR THE IMPACT OF FINANCIAL RISK IN ACTUAL TRADING. FOR EXAMPLE, THE ABILITY TO WITHSTAND LOSSES OR TO ADHERE TO A PARTICULAR TRADING PROGRAM IN SPITE OF TRADING LOSSES ARE MATERIAL POINTS WHICH CAN ALSO ADVERSELY AFFECT ACTUAL TRADING RESULTS. THERE ARE NUMEROUS OTHER FACTORS RELATED TO THE MARKETS IN GENERAL OR TO THE IMPLEMENTATION OF ANY SPECIFIC TRADING PROGRAM WHICH CANNOT BE FULLY ACCOUNTED FOR IN THE PREPARATION OF HYPOTHETICAL PERFORMANCE RESULTS AND ALL OF WHICH