Morning Futures Roundup

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Where Did All the Oil Go?
 Fundamentals

Traders got inkling from the API energy stocks report that Crude Oil inventories had fallen last week, but not even the most bullish energy traders expected the 8.397 million barrel draw in U.S. Crude Oil stocks that the Energy Information Administration (EIA) reported this week.   In addition, the EIA reported that both gasoline and distillates stocks also fell last week, despite a moderate uptick in refinery utilization.  Sharply lower Crude Oil imports were behind much of the declines in Oil stocks, which fell by 1.417 million barrels per day last week. 

Although the market reacted quite bullishly to the inventories report, there are some who believe the sharp drop in imports signals continued weak demand by refineries which are operating at well below capacity due to overall weak demand.  The big question both Crude bulls and bears must now answer is whether rising oil prices will act as a break on any economic  recovery.   If they do, then Oil prices may have risen too quickly given current economic conditions.  This is especially true should Chinese Oil demand begin to ease once the vast economic stimulus provided by the Chinese Government runs its course. 

Traders should also be aware of the movement of the U.S. Dollar.  A weakening greenback has sparked increased interest in owning commodities, especially by institutional traders as an inflation hedge. With a large number of traders holding short Dollar positions, any change in trend could spark massive buying in U.S. Dollars, which in turn could force traders to begin selling commodities, including Oil, as strength in the Dollar would make Dollar-denominated Commodities more expensive for non-Dollar buyers and potentially curtail demand.




Technical Notes

Looking at the daily chart for October Crude Oil, we notice prices are holding above both the 20 and 100-day moving averages, which gives Oil bulls the edge.  However, the failure to take out the highs of 75.27 may be a sign that the bullish momentum is beginning to lose some steam and a sizable correction may be forthcoming if resistance is not taken-out soon. The most recent Commitment of Traders report shows speculators net-long about 125,000 contracts as of August 11th, but this was just before we saw the wild price swings that occurred during the past several sessions. This price action may have shaken-out weak longs, especially smaller speculative accounts.  There are several support points at the 20-day moving average (MA) near 71.30, the uptrend line near 68.42, and the 100-day MA near 65.45. The 14-day RSI is reading a moderately strong 60.08.
 


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