Morning Futures Roundup

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Oil Sector Bull Market Takes a Breather

   Fundamentals
After trading in a $10 price range during the past several months, the rally in Crude Oil futures has taken a breather, although at a much higher plateau than the previous price range. May WTI briefly surpassed the $110.00 per barrel level, as rumors of a Saudi Arabian pipeline explosion circulated around the market. However, prices retreated from yearly highs, as this claim was denied by Saudi officials. Market participants seemed to have priced a "risk premium" into Oil prices, mainly due to concerns of possible supply disruptions from the Middle East and North Africa, given the political turmoil seen in these Oil-rich regions.

A recovery in the value of the U.S. Dollar may also have lent a hand in capping the recent rally, as a stronger Dollar makes commodities traded in U.S. Dollars more expensive for non-Dollar buyers. Though high Oil prices seem to get the most attention, it is within the Oil products where the trade may be more interesting.

The closing of refineries on the East Coast of the U.S. and a plan in New York State to switch to ultra-low sulfur diesel (ULSD) for use as Heating Oil on July 1st may make middle distillate supplies extremely tight, as demand for ULSD is expected to increase by 70,000 barrels per day, while East Coast refining capacity may be reduced by up to 50% should a major refiner shut-production as is expected. The lack of adequate refining capacity on the East Coast may become more pronounced, should the region run into increased transportation issues due to bottlenecks in shipments of fuel via pipelines from refiners on the Gulf Coast to the Mid-Atlantic States.

Though U.S. Gasoline demand has fallen, improved U.S. auto sales and signs of an improving jobs picture could spark increased demand as we move to the summer months and the peak driving season. Signs of a drawdown of Gasoline inventories in Europe may force a curtailment of Gasoline imports, leaving this market sector vulnerable to supply issues later this year.

   Technical Notes
Looking at the daily chart for May Crude Oil, we notice prices starting a new consolidation range, with 111.00 as the upside resistance and 105.00 the current floor. We see the 14-day RSI moving from overbought levels to more neutral readings and currently standing at 57.98. There is a small chart gap just above 104.95, which may be a near-tem target for the recent price correction from multi-month highs. Should the chart gap be filled, we see the next support level at the 20-day moving average, currently near the 104.07 area. Resistance remains at the recent high of 110.95.
   
   
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