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Crude stocks surged to their highest levels in more than 21 years
Market News

WEEKLY FUTURES REPORT

05.02.12

  Last Last Week (4.25.12)
June Crude 105.37 104.08
June Heat 314.51 316.67
June Gas (Blended) 308.11 311.72

Crude oil fell in price after the US Department of Energy stated that crude stocks surged to their highest levels in more than 21 years. Both production and imports rose. Crude stocks rose by 2.84 million barrels to 375.9 million barrels, the most since September 1990. Output was higher by 8, 000 barrels a day to 6.12 million barrels, the highest production number since November 1999. Crude also saw some selling pressure after the release of the ADP private jobs forecast which reported that fewer jobs than initially anticipated were added to the us economy last month. The feeling amongst most market watchers is that prices should be lower than current levels as supplies remain plentiful and economic growth remains sluggish. Supplies in Cushing, Oklahoma, the delivery point for West Texas Intermediate, rose by 1.21 million barrels to a record 43million barrels. Stockpiles in Cushing have increased 13 out of the last 15 weeks. Refineries operated at 86% of capacity last week. This was the highest utilization rate since December 2nd. The Department of Energy went on to state that gasoline stocks fell by 2 million barrels to 209 million barrels, the lowest level since November. Supplies of distillate oil fell by 1.9 million barrels to 124 million barrels, the lowest level since October 2008. The drop in product supplies partially offset the negative implications of the crude oil build. Another negative for the market was the release of factory orders which fell by 1.5% in March after a gain of 1.1%in February. Another consideration for the market to process was news that European unemployment was at its highest level in almost 15 years. Also, tensions with Iran don’t seem to be as strained. This could change but currently the geopolitical premium seems rich to many market observers. They further expect that worldwide stockpiles will increase to levels not seen since the Pac Rim financial crisis 14 years ago when the price of crude fell below $10 a barrel. Others believe that the market doesn’t fully appreciate just how much oil will be recovered by fracking methods, particularly in North Dakota. The Bakken shale rock fields produced 558,255 barrels a day. Other countries are boosting production with Iraq exporting 2.51 million barrels a day, the most in decades. Libya’s production keeps increasing incrementally as well. Saudi Arabia keeps ramping up production. With output at 3 million barrels a day, the highest level in 3 decades. Russia is producing 10.33 million barrels a day. Us production is at its highest levels in 12 years. As can be spotted from the net changes above, either crude is overpriced or products are underpriced.

Now for the charts…

Stochastics on crude have rolled over. Bottom Bollinger is wrinkling higher which is a modest negative. Gasoline is still in a well-defined downwardly sloped channel.

 
  Support Resistance
June Crude 103.60 107.70
June Heat 310.0 320.0
June Gas 305.00 314.00

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METALS  
Last Last Week
June Gold 1647.20
July Silver 30.705
July Platinum 1555.40

Gold retreated in price on Wednesday as statement s by several member of the Federal Reserve’s Open Market Committee suggested that the Fed is not inclined at this time to engage in another round of fiscal stimulus commonly referred to as quantitative easing. Also, India continues to import less gold than previously expected. India imported 30 to 35 metric tons in April, down from 90 tons last year at this time. Prices have been lower over the past three consecutive months. A surge in European unemployment was a negative for the metals market. It seems as though the Federal Reserve won’t provide stimulus if US economic data is just disappointing. Silver continues under distribution with lower highs and lower lows. Volume and

open interest have declined over the past two weeks. Money flow in silver remains negative. A stronger dollar has provided a headwind to higher gold prices.

Now for the charts…

The low close aster the doji and the upwardly bending lower Bollinger are negative developments.

Silver has a hard time spending time above the mid Bollinger while Platinum remains a defined downwardly sloping channel.

  Support Resistance
June Gold 1625 1678
July Silver 30.00 31.60
July Plat 1552 1580

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SOFTS    
  Last Last Week
July Coffee 182.75 176.75
July Sugar 20.55 21.80

A stronger than expected ISM reading led to a recovery rally on Tuesday. Reports of dry weather in key growing areas of Brazil have led to short covering over the past week. Even so, Brazil’s crop should come in at record levels. Declines in Indonesian and Sumatran exports have been a price positive.

Speculative long liquidation finally arrived in the sugar market. Pen interest is at its lowest levels since March. Weather models in Brazil could slow the start of the current harvest but improve yields later in the season. Indian production is higher by 11% from year ago levels.

As for the charts, look for coffee to test the 188 level while sugar cannot find a bottom.

  Support Resistance
July Coffee 175.00 190.00
July Sugar 20.00 21.80
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  Last Last Week
July Soybeans 14.85 14.76
July Corn 6.114 6.01
July Wheat 6.144 6.264

Soybeans experienced a profit taking session on Wednesday after a prolonged run up in values. Continued talk of a tight supply situation to be reflected in next week’s USDA reports supplies a floor under the market. There has been a steep drop in South American production, a positive. Ending soybean stocks might come in under 100 million bushels. Soybeans have not been at those levels since the late 70’s. After a surge in buying interest from China, that interest seems to have been tempered over the past few weeks. Deliveries against the front May contract has also slowed the advance.

Producer selling has been limited in corn, a price positive. Tuesday’s price action was very negative, however. There should be a surge in ending stocks with the next USDA report, a negative. Ending stocks may come in at 1.8 billion bushels compared with 800 million for old crop corn.

The prospect for a very large winter wheat crop is a continuing negative. Weather models are contributing to the bearish outlook. Spring wheat plantings are 74% complete compared to a five year average of 32%. The crop continues to look massive.

Look for support at 14.50 for soybeans. Corn should breach 6.00.

  Support Resistance
July Beans 14.50 15.12
July Corn 6.00 6.38
July Wheat 6.00 6.52
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