Sour Crude
Crude Oil – Oil fell sharply yesterday after comments by Fed Chairman Ben Bernanke indicating that risks to economic growth had increased. While this news is not exactly new, the amount of economic cheerleading being done by Bernanke, Treasury Secretary Hank Paulson and President Bush recently is probably an indication that all is not well. Demand has already shown signs of a slowdown, and threats to the supply side – namely the Iranian nuclear standoff and unrest in the Niger Delta – have kept prices near all-time highs. OPEC has slashed its demand outlook for a sixth consecutive month and also indicated that the trend will likely continue into 2009, citing a possible global economic slowdown. Today's EIA inventory report is expected to show Crude Oil inventories dropping 2.2 million barrels, while gasoline inventories are expected to be flat and distillates are expected to show a build of 2 million barrels. It would not be surprising to see the distillate number come in much lower than the consensus estimate, as the U.S. has been exporting a great deal of diesel fuel in recent months. August Crude Oil is close to confirming a bearish double top formation on a close below 135.34 that measures 123.50 to the downside. Bears may be hesitant to jump on the signal, though, as they have been burned on false bearish technical signals in the past. Traders instead may be looking for longs to liquidate positions first before they test the waters. Support comes in at 134.20, 129.65 and 123.39, while resistance can be found at 145.01, 151.27 and 155.82.
10-Year Notes – Note futures are higher this morning on lower stock index futures and a slide in commodity prices. The previously mentioned economic cheerleading being done by the Federal government and the poor performance in equities has traders looking for a safe haven to put their money, making treasuries attractive. The market may have gotten ahead of itself several weeks ago by pricing in higher interest rates later this year, but the latest recent banking crisis may inspire the Fed to keep rates low. A breakdown in commodity prices could lead to more money flowing into treasuries, as it would be an indication that inflation may be subsiding and would give fixed income an apparent advantage over commodities in terms of profit potential. This is unlikely to happen quickly due to continuing demand for raw materials in emerging markets and the possibility that some unforeseen geopolitical event might spark a rally in Oil prices. September T-Notes were unable to hold the bulk of yesterday's early gains, setting up a possible bearish pattern on the daily chart. A close above yesterday's high of 116-02 could negate the possible bear pattern and get the market back into bull mode. Support comes in at 114-29, 114/12 and 113-25, while resistance may be found at 116-00, 116-19 and 117-04.
Rob Kurzatkowski, Commodity Analyst
