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Saudi wants to increase production while Iran and Venezuela want to keep production levels tight

 WEEKLY FUTURES REPORT

06.08.11

Filed 4:00 pm

Last Last Week

Aug Crude 101.42 100.86

Aug Heat 311.25 302.33

Aug Gas (Blended) 297.09 295.41

Going into Wednesday, crude oil was under pressure from the overnight markets as many players thought that OPEC would increase production quotas at their current meeting. Also, oil was under pressure on the idea that the US economy is in contraction. Comments by Federal Reserve Chairman Bernanke on Tuesday encouraged this view. At the same time, the spread between Brent crude oil and West Texas intermediate oil widened to over $18. This differential encourages oil flow to the Brent market. The market was surprised however upon learning that OPEC could not come to an agreement regarding production levels and simply closed up shop in Vienna and left. While Saudi Arabia wanted to increase production, Iran and Venezuela wanted to keep production levels tight to support prices. The immediate response to this was higher prices. Many in the market were caught on the wrong side of the trade and had to cover their exposures. All of this overshadowed the release of the Department of Energy weekly supply and demand figures. Crude had a draw 4.8 million barrels, a positive for price. Against this, gasoline had increase in supplies of 2.2 million gallons and distillate stocks including jet fuel and heating oil had an increase of 800,000 barrels. Standing alone, these numbers were mixed to slightly bearish. OPEC will not meet for another three months. One item that did come out of this meeting of note was that OPEC’s spare capacity for production will be reached by the end of 2012. Overall, the trend remains lower as a sluggish economy will demand less oil and the price should eventually reflect that. On a positive note, the EIA did raise their 2011 global demand outlook. Crude oil could reverse its intermediate trend with a higher close on Thursday. The same is true for heating oil. The negative component is oddly enough gasoline. Even

with crude oil up over two dollars for the balance of the session gasoline was trading lower than yesterday’s close. Sluggish demand plus demand destruction due to high prices should keep a lid on prices going forward.

Support Resistance

Aug Crude 97.50 103.00

Aug Heat 298 316.00

Aug Gas 287.00 303.50

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METALS

Last Last Week

Aug Gold 1537.20 1543.2

July Silver 36.65 37.694

July Platinum 1824.0 1823.9

Over the past five sessions, gold has sort of been ignored or neglected. Speculative interest does rotate from group to group, market to market

and that speculative interest that was so rabid earlier this year seems to have gotten its fill lately or moved to other markets so price action in gold seems to randomly distribute within a bounded range. Gold has basically decoupled from dollar trading recently, or maybe a better way to look at it is that gold has become more of its own currency rather than a commodity driven by other currencies. Comments by Federal Reserve Chairman Ben Bernanke suggested yet again that inflationary pressures are transitory and that the economy remains structurally weak. Traders are coming to eventually accept that there will not be yet another stimulus package for the US economy. Traders will be looking at a couple of things on the horizon. One will be the ECB meeting regarding interest rates. It is thought that the ECB might raise short-term interest rates in July. Another concern will be interest rates in China. Also some traders are looking at a potentially serious selloff in equities as a potential occurrence in the stock market and if there is such a down-side event accompanied by velocity than there could be a universal margin call and gold would subsequently be sold off.

Support Resistance

Aug Gold 1525 1551

July Silver 35.92 37.56

July Plat 1812 1842

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SOFTS

Last Last Week

July Coffee 263.85 255.95

July Sugar 24.95 22.46

The coffee market apparently stabilized after choppy trading over the past five sessions. Key exporting nations seem to have increased exports over the past several weeks and this has put some pressure on prices. On Tuesday a weaker dollar helps support prices. Coffee remains range bound and is looking for some sort of catalyst to break from current levels.

Sugar has had a fairly decent run to higher levels but may be hard-pressed to continue. Sugar closed at its best level on Tuesday since April 13. A slow start to the Brazilian season has been a positive. A good start to the monsoon season in India is also a price negative. World sugar production should be in a surplus position this year, another price negative.

Support Resistance

July Coffee 253.00 275.0

July Sugar 23.00 25.50

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Last Last Week

July Soybeans 14.014 13.862

July Corn 7.64 7.584

July Wheat 7.48 7.592

Going into the session on Wednesday traders were looking for negative price pressure as weather conditions were favorable in the US and there was the expectation that the next USDA report will show slackening demand. The most recent commitment of traders report showed an imbalance of traders to the long side of the market and this should

spark some selling, at least it did on Tuesday. Wednesday proved a bit different however with prices managing to rally, putting on 7 ½ cents. Idea that flooding of the Missouri River will reduce acreage was a price positive. Money flow in soybeans remains positive. Weather models suggest a warm and dry weather pattern which is a crop positive, price negative.

On Tuesday the weather models suggested that corn prices should come under some selling pressure. Wednesday was a different story as corn rallied over $.27 basis July. Wet weather in South Dakota and Ohio has delayed plantings which is a price positive. Also crops planted along the Missouri River might be flooded out and lost for the entire year. Money flow in corn is positive.

Wheat also put in a good performance on Wednesday and rallied more than $.14. in terms of its short-term technical picture it was critical for wheat close higher on Wednesday and it did. Traders face a USDA crop production report on Thursday morning and many believe that supplies will tighten according to this report. Increased production from the Black Sea area is a negative. French wheat production is supposed to be less than expected. There is a large supply of winter wheat overhanging the market and putting a lid on price advances. All in all, positive with the upside bias.

Support Resistance

July Soybeans 13.75 14.50

July Corn 7.25 8.00

July Wheat 7.215 8.00

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.