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CME group raises margins yet again and crude falls over 5% on the increased stock news

 WEEKLY FUTURES REPORT

05.11.11

Filed 9:30 pm

Last Last Week

June Crude 108.88 108.88

June Heat 314.14 314.14

June Gas (Blended) 331.43 331.43

Oil cratered in price during Wednesday’s trade and gasoline had its signal worst daily decline in almost 2 years as the CME group raised margins yet again. The trigger for the selloff in the gasoline was the release of the Department of Energy figures concerning weekly supply and demand. Crude fell over 5% as the report stated that crude stocks rose by 3.78 million barrels to 370 million barrels. Gas supplies increased by a greater than expected 1.28 million barrels to 205 million barrels. This was the first increase in gasoline inventories in 3 months. There was some demand destruction as consumption dropped to 18.2 million barrels a day. Crude prices are still higher by 29% from year ago levels. There was a trading halt in gasoline for 5 minutes as gasoline fell by 25 cents during the course of the session. The limits in gasoline have expanded to 50 cents. Triggering the circuit breaker at 25 cents and halting trade for all of 5 minutes just gets everyone’s attention and probably creates more panic in the market. The market has whipsawed traders over the past week. Although gasoline stocks rose, this was the first increase in a long time and from dangerously low levels. Refineries continued to run at a slower pace of only 81.7% of capacity. Refineries were running at 88% of capacity last year at this time. Another negative for the oil patch was dollar strength against the EC. Additionally, there is the fear that China will continue to tighten rates to stem inflationary pressures. Continued flooding of the Mississippi may result in supply disruptions. Also, Libya remains unresolved. Economic demand seems to be improving with better jobs numbers. The real factor in pricing is the Exchange and its increasing margin requirements. Monet flow in crude oil is negative. Watch for traders to spread gasoline against heating oil at these levels.

Support Resistance

June Crude 95.00 106.50

June Heat 285.00 306.90

June Gas 305.00 346.00

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METALS

Last Last Week

June Gold 1500.60 1515.90

July Silver 35.085 39.32

July Platinum 1779.60 1826.00

Gold was caught up in the selloff in crude and gasoline Wednesday but managed to close above 1500.00 an ounce. The bias in gold remains higher. Good physical demand is a positive. Potential flight to quality

buying may emerge as we approach a potential US government shutdown over a debt ceiling and budget impasse. Of course, players have been discouraged by ever increasing margin requirements but the structural demand for gold remains in place. The concern over the Euro zone remains real. Greek debt with a 24% yield means that they cannot finance themselves. Seasonal buying from India is said to be good. Central banks remain on the buy side of gold. Money flow in gold is positive.

Silver was washed out on Wednesday as well but money flow is positive. Chinese inflation data supports silver as does the better than expected US trade balance data. A negative feature to Wednesday’s trade was the negative performance in the grain markets which saw corn limit down on bigger than expected ending stocks. Margins are extremely high in silver at over 21K a contract. Margins should be simply set as a percentage of the underlying value of the contract. The way they are currently configured only adds to higher volatility.

Support Resistance

June Gold 1485.00 1528.00

July Silver 33.50 39.72

July Plat 1770.00 1817.00

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SOFTS

Last Last Week

July Coffee 273.15 294.50

July Sugar 20.94 21.35

The coffee market also was swept up with long only commodity fund liquidation over the past several sessions. Contracts traded hands at their lowest levels since April 14th. Warehouse stocks have increased over the past several sessions even though they remain near 11 year lows. Supply/demand rebalancing pressures will favor the bears over the next several sessions.

Higher production levels from Brazil have pressured prices. The idea that world production levels could be higher than originally forecast is a negative. China’s production is 53% higher than year ago levels.

Support Resistance

July Coffee 270.00 295.00

July Sugar 2000 2200

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Last Last Week

July Soybeans 13.316 13.52

July Corn 6.7725 7.294

July Wheat 7.59 7.72

Corn was limit down on Wednesday and soybeans and wheat were also lower as inventories were higher than previously thought. Corn stockpiles may come in at 900 million bushels, up from 730 million previously estimated. Corn has almost doubled in price over the past year. Corn exports may drop to 1.8 billion bushels, the lowest level in 9 years. The drop in exports suggests lower demand due to higher prices. Supplies may yet tighten again as wet fields may delay planting. Wheat

futures were down 39cents. Wheat inventories may increase to 702 million bushels, up from 683 million bushels. Traders believe that the government projections are too high. Weather continues to be the determining factor for this market moving forward. Money flow in soybeans is positive. Money flow in corn is positive. Money flow in wheat is positive as well.

Support Resistance

July Soybeans 13.15 13.62

July Corn 6.55 7.32

July Wheat 7.50 8.12

Chuck Kespert from NY/NY

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 CAN ADVERSELY AFFECT ACTUAL TRADING RESULTS.