HELPING FUTURES TRADERS SINCE 1997

WEEKLY FUTURES REPORT 10.24.12 

Oil came off in price again on Wednesday in the midst of its longest losing streak in five months.  The Street was surprised to learn that crude stocks for the latest reporting week increased by 5.9 million barrels when they had been looking for an increase of 1.7 million barrels. This puts production domestically at 17 year highs. Gasoline stocks also increased by 1.4 million barrels against an expected decline while distillate stocks declined by  600,000. Prices for crude hit a three month low on this report from the Department of Energy. The Department further stated that gasoline demand hit a seven month low. Domestic supply/demand ratios are definitely skewed to the supply side. Crude prices are down 13% for the year. Domestic stockpiles are by some measures at all- time highs or at least since the government has been tracking them since 1982. Production stands at 6.61 million barrels a day which is a 17 year high. Imports have increased for a fourth consecutive week. Refinery utilization is down due to demand destruction. Gasoline consumption declined by 2.7% to 8.49 million barrels a day. Gas dropped for a tenth consecutive day, the longest losing streak since trading started in 1986. Another negative for the complex was a contraction in Euro zone economic activity and a drop in German business confidence.  Money flow in crude oil is negative as it is for both heating oil and gasoline.

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Gold came off sharply over the past week. A back up in interest rates was a negative for the market. Also, ideas that traders were book squaring well ahead of the presidential election suggested itself as well. A generally stronger dollar was a negative. The belief that a Romney presidency would see the replacement of Fed  Chairman Bernanke and the end of massive stimulus by the Fed was a negative influence. Also, Mario Draghi of the ECB warned of deflationary, not inflationary pressures in the Euro zone looking forward. A massive drop in the price of crude oil was a negative on prices for metals. Gasoline was lower 10 sessions in a row, a string of declines never seen by traders since the inception of the contract. Failure of the communique from the Federal Reserve Open Market Committee meeting to lift prices was a negative. Failure of a better reading in the Chinese Purchasing Managers’ index to inspire buying was a negative. Loss in German business confidence was a negative. Losses in silver weren’t quite as aggressive. Chinese platinum imports are down 7% year over year. Uncertainty over the outcome of the upcoming election, the difficulty in gauging market repercussions and the possibility of going over a “fiscal cliff” at year end have all worked to dampen risk appetitive. Money flow in gold and silver are both negative.

The chart is not indicating that a bottom is in place. The only positive is RSI approaching oversold.

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SOFTS

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The market wants to hammer out a low but the fundamentals aren’t cooperating. Funds and trend followers remain convicted to the short side of the market. A consensus building for a world economic slowdown has depressed coffee prices. Vietnam may come in with a better than expected crop next year. Losses in US equities matched with dollar strength combined to pressure prices. Roasters pulled back from the market expecting prices to fall even further.

The price of Sugar was at its lowest level since the beginning of September. Supply continues to pressure the market lower. Russian sugar beet production is higher. Chinese imports are lower. The price for sugar in India is at a three month low. Momentum and path of least resistance remains lower.

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GRAINS

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Grains were higher over the past five sessions managing to overcome negative sentiment in outside markets. The cash market for beans was firm. Grain traders in Europe were able to overlook a contraction in Euro zone purchasing managers’ index and a drop in German business confidence. Higher barge rates in the Mississippi River and Gulf of Mexico were a positive. Dry weather in south and south central Brazil were a positive for the soybean market. Prices would rally further if there are delays in the Brazilian harvest. Money flow in soybeans is positive. A fear of a global shortage in protein is supporting prices.

Higher prices for South American corn lifted prices in the US. This improves US export prospects. September Chinese corn imports were higher by 113% compared to last year at this time. Rumors that Argentina is running out of corn to export have supported prices.