Energy Bulls Giving Thanks
Crude Oil – Crude Oil futures rallied to touch all-time highs yesterday and set a new high for the January contract. The rally was fueled in large part by a rapidly declining U.S. Dollar and an expected drop in Heating Oil inventories. In addition to the uncertainty plaguing the U.S. economy in the wake of the credit crunch, talk of OPEC nations and China diversifying away from the Dollar has put a lot of downside pressure on the greenback. The release of the FOMC minutes showed that the October rate cut passed by only a slim margin, but traders seemed to think the central bank will continue to lower rates to stave off economic contraction that would likely lead to further declines in the value of the Dollar. Chairman Bernanke seems to prioritize economic growth over keeping inflation in check, unlike his predecessors Greenspan and Volcker. Today's weekly inventory figures are expected to show a build of roughly 1 million barrels of Crude Oil, but a surprise drop could push prices beyond the $100 mark, especially with the market hunting for bullish news. January Crude had a technical breakout above the prior contract high of 97.63, but did so on lighter volume. Crude made a new all-time high of 99.29 in overnight trading before retreating below 98.50, as traders were reluctant to continue buying ahead of the inventories data. Momentum has shifted lower, while RSI climbed slightly, suggesting a slight bearish bias. Support comes in at 97.63 and 93.06, while resistance may be found at 100.00 and 105.00.
Heating Oil – January Heating Oil made new contract highs in overnight trading on speculation that inventories are going to show a decline of 400,000 barrels for the week. This winter is expected to be much milder that prior years, but much of the country will be dealing with below average temperatures for the next couple of weeks. The rising cost of Crude Oil and the seasonal decline in inventories have pushed prices higher. Last week, DOE data showed that Heating Oil inventories were at 30 days of supply after the market was oversupplied for much of the year. A drop below 30 days of supply could spark further rallies in both the Crude Oil and finished products markets. Like Crude, January Heating Oil rallied to a new contract high close yesterday and made new all-time highs in overnight trading. While this can be viewed as a breakout, traders remain cautious because of the low volume figures ahead of the Thanksgiving holiday. Momentum has fallen in early trading, but there is no divergence from the RSI indicator. The market did break sharply after making new highs, which could put some downward pressure on the market if inventories are in line with forecasts. Support comes in at 2.6700 and 2.5900, while resistance may be found at 2.7500 and 2.8000.
S&P – Stock index futures are lower this morning on the strength of the energy markets and lukewarm forecasts for the Christmas shopping season. Stocks managed to rally late in the day to post gains after the release of the FOMC minutes. The minutes showed the Fed lowered growth expectations for 2008, which led traders to believe that rate cuts could lie ahead. But yesterday's euphoria has worn off and rapidly rising energy prices have weighed on the market. If petroleum prices continue to climb, the Fed may be forced into inaction or even change its bias toward a rate hike early next year, which would not only slow down the economy but also kill demand for petroleum. Traders will focus on the Michigan Consumer Sentiment figure more than usual ahead of the holiday shopping season, and Wall Street seems concerned that rising prices at the pump and tighter lending standards may keep consumers away from the stores. December e-mini S&P futures continue to trend lower and are currently trading below the major moving averages. The 9-day MA has acted as resistance over the last seven trading sessions, and the market may need a close above the average to get some upside momentum. The momentum indicator continues to show bearish divergence from RSI, painting a negative technical picture for the market. Support comes in at 1425.00 and 1400.00, while resistance can be found at 1465.00 and 1496.00.
Rob Kurzatkowski, Commodity Analyst
