OPEC Comments Keep Crude Market in Check
Crude Oil – Oil futures pulled back in trading yesterday despite a very bullish inventory figure – a draw of 6.8 million barrels that easily eclipsed consensus estimates of a 2 million barrel draw. However, Gasoline inventories saw their strongest build in over a year with a jump of 5.22 million barrels, offsetting the news in Oil. The state of the U.S. economy was very much on the minds of traders, with the latest blow coming from Goldman Sachs in a recession prediction for 2008. Stocks did manage to do an about face late in the day to post the best gains of the year thus far, but this was largely due to value buying and short covering amid oversold conditions. Each subsequent economic release seems to show conditions deteriorating to the point that even the most bearish of analysts are left scratching their heads. Commodities were mixed on the day, but indications point to another stellar year on concerns of highly inflationary conditions worldwide, not just in the U.S. OPEC's statements this morning indicate that the cartel is worried that a U.S. slowdown could easily spill over to the world stage. All of these factors are leading to a growing sentiment in the market that the threat of lower fuel consumption globally may influence traders to diversify away from petroleum and move to more traditional inflation hedges, such as precious metals and food-related commodities. Nonetheless, Crude Oil does still appeal to many traders who believe that tight global inventories will be able to support these lofty price levels and possibly even push prices above $100 a barrel. February Crude has drifted below 95.00 this morning and a close below this area could lead to a test of the 90.00 mark. Momentum remains strong in the face of the recent decline, but the divergence between the indicator and RSI is now rather insignificant. The market is flirting with the 18-day moving average and a close below the average would be a bearish signal in the near- to mid-term. Support comes in at 94.74, 93.80 and 92.19, while resistance can be found at 97.28, 98.90 and 99.83.
Dow – Stock index futures are coming in lower after posting the best gains of the New Year yesterday. The late buying was influenced by comments from Berkshire Hathaway that the company sees corporate earnings holding up in 2008, despite the tough economic conditions. Capital One slashed its growth forecast, becoming the latest victim of the credit crunch. The market will be keeping a close eye on today's initial jobless claims figure after last week's bombshell non-farm number. Scheduled for release at 7:30 AM CST, Initial Claims are forecast to rise to 340,000 – up from 336,000 the prior week – but it would not be surprising to the figure come in closer to 350,000. A slightly higher figure may actually be just what traders are looking for, with the belief that it could lead to expansionary policy from the Fed. Wholesale inventories at 9:00 AM CST are expected to show a 0.4 percent increase in November after a flat October figure. Yesterday's rally did little to improve the March Mini Dow chart, which remains very bearish over the longer-term. A close above 12845 may be considered bullish in the near-term and could bring about a test of 13250, but the market has a lot of work to do in order to change the longer-term technical outlook. Adding to the positive short-term technicals, momentum is showing strong divergence from the RSI, suggesting further short covering and bargain hunting may be seen over the next few trading sessions. Support comes in at 12599, 12452 and 12355, while resistance can be found at 12843, 12940 and 13086.
Gold – Gold is trading lower this morning on heavy profit-taking due to technically overbought conditions and lack of new buying interest. Lower energy prices and OPEC's somewhat grim outlook on the state of the global economy point toward tamer inflation, which has also influenced trading. Fundamentally, nothing has changed, suggesting that this could be the start of a healthy correction. The weak close after sharp rallies early in the day formed a spinning top candlestick, which is not necessarily bearish in and of itself but could signal a near-term reversal if the market is not able to recover from early losses. Closes below 870 and 859.40 may offer confirmation of the near-term reversal. The 9-day RSI and slow stochastics remain at very overbought levels, adding to the downside pressure. Momentum remains very strong, suggesting that a reversal may be short-lived. Support comes in at 872.20, 862.70 and 851.60, while resistance may be found at 892.80, 903.90 and 913.40.
Rob Kurzatkowski, Commodity Analyst
