HELPING FUTURES TRADERS SINCE 1997

WEEKLY FUTURES REPORT

07.11.12

                                    Last                       Last Week (7.03.12)

Aug Crude                  86.14                          87.66

Aug Heat                   276.50                        275.85

Aug Gas (Blended)   277.58                        272.29

Crude rallied on Wednesday as the Department of Energy stated that crude stocks dropped and refinery runs increased to the highest level in nearly five years. For the latest reporting week, crude stocks fell by 4.7 million barrels to 378.2 million barrels. The decline was three times greater than what the street had been looking for. . Refineries operated at 92.7% of capacity. This is the highest level since 2007. Traders said that with refinery runs this high, the expectation would be for a drawdown in crude and a build in products. Gasoline stocks rose by 2.75 million barrels to 207.7 million barrels. The trade had been looking for a gain of 500,000 barrels. Distillate stocks rose by 3.11 million barrelsto20.9 million barrels. Interestingly enough, the build in products suggests weak demand from a macro view and this view was what caused the downside break in crude oil to begin with. Total fuel demand dropped by 1.1%to average 19 million barrels a day. This is the biggest decline since February. Gasoline demand fell by .06% in the middle of the driving season. The embargo against Iranian oil seems to be working. There are 65 Iranian tankers functioning as floating storage facilities as buyers have turned away. Iran is not anxious to limit its oil production as it could damage their wells. The embargo has probably cost Iran upwards of 10 million dollars. Iran is currently producing 2.8 million barrels a day but only selling 1.8 million barrels a day. With this oil overhanging the market, price advances will be difficult to sustain. Eurozone eco contraction is a continuous drag on the complex.

Crude looks to trade sideways while gasoline looks to claw back recently lost ground

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The price action in gold has been disappointing to the bulls. With grains soaring on crop reduction and drought fears and crude rallying sharply after inventory levels declined, gold failed to rally. Chinese economic contraction is a gold market negative. An increase in the Spanish sales tax to 21% as part of its austerity program is recessionary. Another negative for gold arrived in the release of the Federal Open Market Committee meeting notes which failed to mention stimulus in the form of QE3. The fact that China lowered interest rates twice in the last month reflects the economic contraction in that country. The massive demand for US treasury securities as seen at the 10 year note auction which produced a 3.61 bid to cover ratio suggests that many investors are concerned about downside risks and that for the moment, gold is not their hedge of choice. Money flow in gold and silver remain negative in terms of money flow.

Gold still trading with a downside bias.

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SOFTS

                                     Last                             Last Week

Sept Coffee               184.70                               180.45

Oct Sugar                 22.88                                   21.98

Recent commitment of traders reports how that trend following funds are still short this market even though the chart would have suggested an exit by now. Prices have rallied to their best levels since May. Vietnamese exports are expected to have declined by 50% this month, a price positive. A drop in exports from El Salvador is another price positive.

Recent rainfall problems in Brazil seem to be coming to an end. The harvest still remains behind schedule. The short term forecast remains dry. Northern India has also been experiencing drought conditions. India is still expected to have a sugar surplus this year.

Technically, reversal pattern may be being drawn.

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GRAINS

                                         Last                       Last Week

Nov Soybeans                 15.224                        14.476

Sept Corn                        7.04                           6.74

Sept Wheat                     6.262                          7.992

Corn ran to its best level since last September as the USDA cut its harvest projections due to drought conditions in key growing areas of the Midwest. On the move, soybeans touched a 4 year high before profit taking set in. The drought is the worst since 1988. The USDA cut the corn crop yield by 12%. Last month, USDA had predicted a record harvest. The soybean crop was cut by 4.8%. Global wheat production is also expected to be reduced by less than expected yields in Russia. More than 50% of the Midwest is experiencing drought. Corn prices are 42% higher since mid-June. Corn yield is expected to come in at 12.97 billion bushels, down from the previously predicted 14.79 billion bushels. Acreage yield is expected to come in at 146 bushels, down from a projected record of 166 bushels an acre earlier in the year.

The market is massively overbought. Soybeans are notoriously hearty. The market shows two days of price rejections with a reversal on Wednesday. The nature of grain markets is to periodically rally sharply then crash. Extreme caution should be given to fresh long positions at these level