OPEC Keeps Supplies Steady
Crude Oil – Crude Oil is higher this morning after a majority of OPEC ministers decided to keep output unchanged. This week's trading is a far cry from the bullishness that had been prevalent over the past two weeks, as illustrated by yesterday's sharp drop ahead of the cartel meeting. The petroleum market – like many commodity markets of late – has become detached from supply and demand fundamentals, with fund and investment money becoming the driving forces behind the push beyond $100 a barrel. The market is expecting a build of 2.3 million barrels of Crude Oil this week and a larger build may bring about a test of the century mark. The Crude chart is indicating that the market may be vulnerable to profit-taking pressure. After the spinning top formed by Monday's trading, the market formed a large down candle, which tested near-term chart support in the 99.00's. Another close below 100.00 could be bearish psychologically and a close below 97.00 would be considered bearish near-to-medium term. Momentum is showing bullish divergence from the RSI this morning, but is not particularly strong. Support comes in at 97.81, 96.11 and 93.35, while resistance can be found at 102.27, 105.03 and 106.74.
Cotton – The Cotton market is limit up once again this morning after being the lone bright spot during yesterday's broad commodity sell-off. Near record Crude Oil prices have many traders believing that demand for the fiber will rise, as synthetic fabric prices are likely to climb. There may be an acreage battle brewing this year due to the rising cost of Wheat, which may steal acres away from Cotton and pressure supplies. A positive outlook from commodities guru Jim Rogers has also helped attract spec buying. Many former and current floor traders are beginning to point the finger at the ICE exchange, which has made several moves that are perceived to have hurt both speculative and commercial shorts. The exchange expanded limits and raised margins twice in a 24-hour period, which put shorts on call and essentially forced them out of the market. Also, the elimination of floor trading in futures has some critics pointing out the fact that option traders and hedge funds are determining price and direction in a market that has traditionally been driven by commercials, making a strong argument that some markets are simply not suited for electronic trading. The technically overbought conditions, along with the possibility that traders do not want to get locked into a position ahead of Tuesday's USDA report, may make the market vulnerable to profit-taking. Given the high volume of fund positions, sell-offs may be as dramatic as those seen in the Wheat market in recent weeks.
Gold – The Gold market is unable to get any footing this morning after falling almost $18 an ounce yesterday. The market flirted with the 990 area the previous two sessions and some longs may have become frustrated that prices did not test the $1,000 mark. Yesterday's broad sell-off in commodities – namely energies – and stabilization in the Dollar also helped spur long liquidation. The fundamentals for the precious metals market have not changed, as the equity markets remain weak and inflation risks remain. This may just be the healthy near-term correction the Gold market needs after five consecutive positive sessions. Yesterday's sell-off caused little if any chart damage and April Gold remains in a strong uptrend. The market has recovered from overbought conditions on the RSI, which is being outpaced by the momentum indicator, suggesting near-term strength. Support comes in at 953.00, 939.60 and 921.00, while resistance can be found at 985.00, 1003.60 and 1017.00.
Rob Kurzatkowski, Commodity Analyst
