Inventories, Chavez Lift Oil Markets
Crude Oil – April Crude Oil is higher in overnight trading, boosted by lower-than-expected inventories and a positive GDP reading from Japan. Yesterday's build of 1.1 million barrels was much lower than the 2.7 million barrel increase the market was expecting. Meanwhile, the economy of Japan – the world's third largest petroleum consumer – grew at a pace of 3.7 percent in the fourth quarter of last year, which doubled the consensus estimate. The solid GDP figure suggests that a U.S. recession may not spill over to the global economy. Oil traders are once again worried about the possibility of tight supplies, setting a bullish tone for the market. Venezuelan president Hugo Chavez is following through on his plans to cut off Oil sales to ExxonMobil, which could have a small impact on U.S. supplies. The move may backfire on the heavy handed leader, as Exxon will have an easier time finding alternative suppliers than Venezuela will have finding alternate buyers for the hard-to-refine heavy Oil the country produces. The U.S. is one of the few countries with the ability to refine this heavy variety of Crude, and the communist government needs money to fund its social programs, which may cause the government to step back from this policy. April Crude appears to be breaking out of a bullish flag formation on the daily chart, realized after the contract confirmed a double bottom. This sets a bullish technical tone for the market, with the possibility of rallies to the $98 mark. Momentum is outpacing both RSI and price, which is also bullish in the near term. Support comes in at 92.32, 91.23 and 90.39, while resistance can be found at 94.25, 95.09 and 96.18.
S&P – Stock index futures are pointing higher this morning on the good news out of Japan. The strong Japanese GDP data should be supportive for large multinationals that do business in the Pacific Rim region. Positive comments from several economists stating that the U.S. may avoid a recession combined with value buying to lift the equity markets over the past three sessions. Despite the upbeat comments, rocky times may still lie ahead. Today's release of initial jobless claims is expected to show very meager improvement, with the consensus forecast calling for a drop to 350,000 from 356,000 last week. The labor market has been battered over the past few months and improvements to the poor data we have seen recently may be needed for stocks to maintain their recent recovery. The March e-mini S&P chart remains an enigma, showing much indecision among traders and a lack of short-term direction. The daily chart, however, does appear to be forming a wedge formation. The formation – which can take weeks to build in many cases – may be a harbinger of rough times ahead, as a downside breakout could send the market into the low 1200's or possibly even the 1100's. Bulls are looking for the March contract to take out recent highs near 1400 before sentiment can swing in their favor. A close above 1430 could signal a reversal of the recent downtrend. Momentum is outpacing the RSI indicator, suggesting that the near-term bias remains to the upside. More importantly, the 20-day momentum indicator is close to breaking through the zero line, which can be seen as a medium-term buy signal. Support comes in at 1348.00, 1332.25 and 1321.00, while resistance can be found at 1375.00, 1386.25 and 1402.00.
Rob Kurzatkowski, Commodity Analyst
