Crude Continues to Dance Around the Century Mark
Crude Oil – In early trading, Crude Oil has given up some of yesterday's strong gains on economic worries. Despite a substantial build in Oil inventories, futures rallied sharply on the much larger-than-expected drawdown in Gasoline inventories. Oil traders were also undeterred by a global economic downgrade by the IMF and Fed Chairman Ben Bernanke's testimony before Congress, where he stated that the U.S. economy is still at risk for recession. The IMF report reduced the expected growth rate of the U.S. economy from 1.5 to 0.5 percent, leading to a slide in the U.S. Dollar that helped contribute to yesterday's rally. This morning's trade has been marked by pessimism over the state of the global economy, which could quell demand for petroleum. The May Crude Oil chart looked as if it was going to confirm a double top, but yesterday's rally negated the pattern. If prices cannot break through the near-term high of 108.22 before selling off, it may signal vulnerability at the 100.00 mark. Oil bulls seem to start value buying when the market flirts with the century mark, but if the May contract cannot hold these levels a larger correction may loom. Support comes in at 101.41, 98.00 and 96.15, while resistance can be found at 106.67, 108.52 and 111.93.
Silver – Silver futures are slightly higher in early trading, but do not seem to be able to build on yesterday's momentum. Lack of follow-through buying in energies has weighed on the precious metals market, as has the recent strength of the U.S. Dollar. Despite indications that the U.S. economy is cooling and relatively dovish testimony from Ben Bernanke, recent weakness in precious metals underscores how much the Dollar weakness contributed to the sharp rise in commodity prices. Even though economic fundamentals suggest that Silver would be a “safe haven” investment, the strength of the greenback has held price advances in check. Tomorrow's non-farm payroll data will be keenly eyed by traders and further weakness in the labor market may result in the mindset that the Fed will again begin slashing rates with reckless abandon, which would likely be considered friendly to Silver. The daily May Silver chart shows that the market is vulnerable to selling pressure if prices cannot advance beyond the 18.685 mark. The chart shows the formation of a bearish flag pattern, which, if confirmed, could result in a test of the 15.50 support area. Momentum is showing bearish divergence from both price and RSI, suggesting near-term weakness. Support comes in at 16.755, 16.330 and 15.945, while resistance can be found at 17.565, 17.950 and 18.375.
Copper – Copper has given back about a third of yesterday's gains on a sharp increase in LME inventories. LME inventories jumped 500 metric tons, or half a percent. Shanghai inventories have also climbed over 4.5 percent for the week, showing a reversal in the de-stocking pattern that has taken hold since the beginning of the year. The economic uncertainties laid out by the IMF – suggesting we may be cooling on a global scale – and the greenback rally have weighed on prices in early trading. Copper has benefited from the tumbling greenback and reductions in LME and Shanghai inventories since the beginning of the year, but a reversal in these two trends may hold back prices. After trading sluggishly for over a week, yesterday's rally seemed to have shifted technicals to the upside, only to disappoint this morning. The market's failure to advance beyond the 4.00 mark could be met with selling pressure. Support comes in at 3.7990, 3.7210 and 3.6750, while resistance can be found at 3.9235, 3.9690 and 4.0475.
Rob Kurzatkowski, Commodity Analyst
