Morning Futures Roundup

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Oil’s Well That Ends Well
 Fundamentals

How quickly can market sentiment turn?  Just ask those involved in the Crude Oil and Gasoline futures markets where just three weeks ago prices were making yearly highs, as talk of potentially escalating inflation on the horizon as well as the "green shoots" of an economic recovery later this year led to a strong interest in all things commodities by speculators.  Few commodity markets are as large and as liquid as the energy market, which makes it a favorite target of large noncommercial traders like hedge funds. 

Now however, energy bears are finally getting their due, as Oil and Gasoline futures have fallen to 5-week lows, gapping lower on the daily charts, as traders are beginning to have some doubts as to the speed of any economic recovery.  A moderate rebound in the U.S. Dollar and sagging world stock markets during the past week have both certainly helped energy bears ’positions.  The Gasoline market was the strongest member of the complex, especially when U.S. refinery rates were in the low 80-percent range. 

However refinery rates have recovered recently, and last week’s surprisingly large 2.33 million barrel stocks increase combined with lower U.S. demand certainly took any bullish thoughts from traders’ minds.  This week’s EIA report is expected to show another increase in Gasoline stocks, with current estimates calling for an additional 1.1 million barrel increase. 

Not even continued unrest in Nigeria appears to be helping Crude prices, despite The Movement for the Emancipation of the Niger Delta rebels (MEND) claims of attacking another major oil company’s pipeline in this important oil exporting country.  Traders should heed the oil market saying that "A market that does not react bullishly to "bullish" news is not bullish!"

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Technical Notes

Turning to the daily chart for September RBOB Gasoline, we notice how sharply prices have fallen once the market closed below the widely watched 20-day moving average.  Yesterday’s gap lower may signal further long liquidation selling is ahead, despite prices closing off the day’s lows.  Gasoline bears have two tempting technical targets in their sights -- the uptrend line from the February lows, as well as the 100-day moving average.  Both these targets are still 10 to 15-cents away, but a larger than expected rise in Gasoline stocks in this week’s EIA report could provide the spark for a test of this key support area. 

The 14-day RSI looks weak, but has yet to reach oversold territory, as the current reading remains just above the 30 area. The next support area is seen around 1.6460, with resistance found near the 1.7700 area.



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