"Eventful" Few Days For Crude
Crude Oil – Oil futures are up for the third consecutive trading session on renewed Middle East tensions. Turkey has mounted a new offensive in northern Iraq against Kurdish rebels, which threatens to disrupt supplies. The Turkish government has indicated that the attacks against rebels will continue, but the military also stated that they will only attack rebel bases. While the offensive itself is not likely to result in damage to pipelines, traders fear that PKK rebels may launch terrorist-style attacks on key supply lines to retaliate against perceived American and Iraqi government complicity. Elsewhere, criminal gangs siphoning off a Nigerian Oil pipeline triggered an explosion that killed 40 and disrupted supplies from the Oil-rich nation, which pumps 2.5 million barrels a day. After a relatively calm month on the geopolitical front, these renewed tensions – along with the belief that OPEC has not yet made good on its promise to increase output as of November 1 – have traders thinking that U.S. supplies will be lower than seasonal norms. Tomorrow's inventory release – a day later than usual due to the Christmas holiday – is expected to show a drop for the sixth consecutive week. The February Crude chart is beginning to look more bullish, but traders may be cautious due to recent false breakouts and light volume, which has caused choppy trading conditions. Traders may be looking for a close above recent highs of 94.72 to validate an upside breakout and a late-day sell-off could scare away bulls. The momentum indicator has turned positive for the first time in two weeks, when it and the market turned higher before falling back. The indicator is showing bullish divergence from the RSI, suggesting a positive near-term bias. Support comes in at 92.35 and 89.15, while resistance can be found at 95.20 and 96.60.
S&P – Stock index futures are flat in early trading on news that retail sales leading up to the Christmas holiday have improved, but by less than many had expected. The retail sector is now gearing up for the post-holiday/New Year season, which starts today. Gift card use has increased significantly over the past several years, and retail giants like Best Buy and Wal-Mart are banking on their use, along with deep discounts, to help drive sales going into 2008. Many big box stores are expected to discount products more deeply than in previous years to clear away inventory, a recent trend that has made the post-holiday season almost as vital as the pre-holiday period. Other than retailers, it looks to be a quiet news day for the market with no economic releases and no early stories hitting the wires. The March e-mini S&P closed above the key 1500 on Monday, which may be considered an upside breakout. Traders may take the signal with a grain of salt, however, given the light volume and the perceived “Santa Claus rally” on Monday. More confirmation may be needed to attract bulls and stop out bears. Support comes in at 1485 and 1475, while resistance can be found at 1515 and 1530.
Soybean Oil – Bean Oil continues to rally on strong demand and rising spot prices in China, with the March contract making a push toward new highs. The strength in petroleum prices and a weaker Dollar could further support Bean Oil prices. China's appetite has not waned in spite of the stabilization of the greenback in recent weeks, with domestic output lower than expected and the government's plan to stockpile oilseeds. The March chart shows Bean Oil breaking out of recent congestion. Momentum is showing bearish divergence from both price and RSI, which could indicate the possibility that this may be a false breakout. The market is in overbought conditions on the RSI and stochastic indicators, signaling that the market may be susceptible to selling pressure. Support comes in at 47.33 and 46.45, while resistance may be found at 48.25 and 48.60.
Rob Kurzatkowski, Commodity Analyst
