Pipeline Shutdowns Spark Crude
Crude Oil – Crude Oil futures have pared over a third of yesterday's losses on two major pipeline shutdowns. BP is temporarily closing down the Forties Pipeline System – which supplies the UK with 40 percent of its Oil – due to the work stoppage at the Scottish Grangemouth refinery. Although the stoppage is said to be for only 48 hours, in reality it takes over a week to fully restart a pipeline. Militants in southern Nigeria have also sabotaged one of Shell's major pipelines, marking the second such attack this week. It appeared that the market was ripe for a profit-taking sell-off prior to the news of the shutdowns, but the market seems to keep finding fresh news to push prices higher over the past few weeks. Prices still may ease going into the close given the solid gains this week, which could indeed lead to profit-taking after all. The June Crude Oil chart was signaling a strong reversal possibility prior to today's rally. Yesterday's sharp sell-off followed the inability of the market to post solid gains on Wednesday which, when coupled with overbought levels, seemed to be pointing lower. Now it appears that June futures may continue their uptrend, provided we do not see a sell-off below yesterday's low of 114.25. Support comes in at 114.11, 112.15 and 110.06, while resistance can be found at 118.16, 120.25 and 122.21.
Gold – Gold futures are down once again this morning on the continued recovery in the U.S. Dollar. Investment in the yellow metal has been lackluster over the past several weeks, with investors forsaking commodities in favor of stocks. Traders are now betting that the Fed will at the very least pause rate cuts after next week's policy meeting, which does not bode well for precious metal prices. The rising cost of food may force the central bank to rethink its interest rate policy, especially with the increased press coverage that food inflation has received recently. This may cause some backlash against the Fed politically, as many analysts have partially blamed the bank for this phenomenon. The technical outlook for June Gold may be turning positive if the market is able to hold relative lows at 876.30. The market sold off to 880 in the early going before making a recovery, suggesting buyers are waiting for an opportunity to get in at relatively cheap prices. Momentum has made moves to the upside, diverging from price and RSI, and suggesting the possibility of a reversal. Support comes in at 880.10, 870.80 and 856.20, while resistance can be found at 904.00, 918.60 and 927.90.
Bonds – Bonds may be poised for their biggest three-day decline since early February and their biggest two-week loss in almost 26 years. With traders now thinking that the Fed may pause or completely stop cutting rates after next week's FOMC meeting, Bonds have suddenly lost their appeal. According to many experts, the worst of the credit crisis may have passed, which suggests the Fed will be much less aggressive in the future. The weak greenback only adds to the downside pressure for Bonds, with overseas entities shying away from U.S. treasuries because of the currency risk. June Bonds look bearish on the daily chart, having confirmed a downside breakout from a bearish pennant pattern on the daily chart. The breakout suggests that the market may test February 20th lows of 113-31. Support comes in at 115-13, 114-23 and 113-27, while resistance can be found at 117-00, 117-28 and 118-18.
Rob Kurzatkowski, Commodity Analyst
