27th April 2011
Commodity Overview
Focus on Oil

WTI Crude Light Oil futures made an impressive bounce last week after the sharp pullback seen after the news of an S&P outlook downgrade for the US. Since then the market has moved back towards the highs made earlier in the month at 114.07, currently trading around the 112.00 handle.

Thoughts from the trading floor

Crude Light futures have risen sharply since this time last week, leaving a triple daily bottom around the 106.00 handle. This is now key support for the market. Having also broken through resistance at 110.90 the June contract has consolidated and has now closed above this level for the previous three days. This will act as short term support and bulls will look to keep the market above this level with an eye on another leg upwards. Note though that volumes in particular, and also volatility have been low this week, owing mainly to the Easter holidays and lack of news. This leaves the potential for sharp moves in either direction should volumes pick up.
The market continues to build value at these elevated levels, trading between 111.00 and 113.50 this week. For now, the high of 114.07 made on 11th April remains in place and will probably act as resistance at least on any initial test. With equity markets showing particular strength this week as well as continued weakness seen in the dollar recently, a move higher looks the most likely scenario. With the end of the month coinciding with an extra long weekend in the UK as well as some of Europe, we may seem some volatility towards the end of the week as participants cover some positions.
Last night the American Petroleum Institute reported a rather large build of 4911k barrels, comparing with DOE estimates of a build of 1700k barrels. The API Gasoline showed a draw down of 2088 barrels compared with current estimates at the DOE of a drop of 1000k barrels. There seems to be little evidence to suggest supply is dwindling with the unrest in the Middle East, suggesting the moves in Oil are more down to speculation on the future of the World and US economies. We will watch these figures over the next fee weeks to see whether short supply becomes an issue.

Bull View

With the triple bottom around 106.00 creating key support, the market has continued to look strong, breaking through the 110.90 level. Having consolidated above here the bulls will look to make a run at the high made earlier in the month. A break above here and the 120.00 handle will be the next target.
Bear View

The bears have struggled to maintain any momentum for a long time now with moves lower consistently struggling to break through meaningful support. The high of 114.07 will need to remain in place if the bears are to regain any sort of control. A strong break of the 110.90 level to the downside could see a move back towards 106.00 and any reaction here will be key.
Futex View

We continue to be bullish Oil, and expect the market to test the highs and break through soon enough. 120.00 remains our medium term target. As long as the market can remain above 106.00 we are short term buyers as well.

6th April 2011
Commodity Overview
Focus on Oil

Crude Light Oil futures moved higher again since our last look, moving from around the 108.00 handle to make highs of 113.45. This was before a sharp pull back over the last two days, with the May contract now trading around 106.50.
Thoughts from the trading floor

After breaking out of the 97.00-107.00 range at the back end of last week the market surged higher to make highs of 113.45 on Monday. Overnight on Monday though we had an upgrade in the severity of the problem at Japan’s Nuclear plants, along with the IMF downgrading their estimates for world economic growth. A further sell-off went through on Tuesday with the move attributed to a Goldman Sachs piece suggesting both Brent and WTI Crude prices would fall in the coming months. This has left the short term technical picture uncertain.
After a fast breakout of the previous range on stronger volumes the market could not consolidate at any prices further up and we have seen a sharp rejection back into the range. As long as the market remains above the 97.00 level then it remains bullish but we may see the Oil Futures fall back into trading the range. Any breakout through the 107.00-108.00 area will target recent highs at 113.45 again. Medium term support lies at 102.00-70 before the major support at 97.00-70. Any break through these areas would be a major cause for concern for the market.

Last night the American Petroleum Institute reported that US oil inventories posted a build of 1187k barrels for the week. This compares to the analyst estimate for the DOE number of a gain of 1000K barrels. The API gasoline showed a huge draw down of 4598k barrels, with the estimate for the DOE number currently showing a draw of only 1000k. This may cause some added volatility over the release of the numbers but after recent market moves, will play a small role in providing sentiment.

Bull View

Even after two days of heavy selling off Oil remains at elevated levels. The market is currently trading around 106.50 which is still towards the top of the 97.00-107.00 March trading range. Bulls will look to halt the sell off however and get the market back above short term resistance at 106.70.
Bear View

The bears have had a strong couple of days after initially allowing the market to break upwards last week. They will look to keep the market below 107.00-108.00 with a view to targeting 102.70 and furthermore, the important psychological 100.00 handle.
Futex View

We are still long term bullish the Oil market and expect a test of the 120.00 handle in the coming months. Even though we have seen a sharp pullback in the last two days, we see this as opportunities to buy, especially if the market gets back to the lower end of March’s trading range.

6th April 2011
Commodity Overview
Focus on Oil

Crude Light Oil futures have edged up recently and are now trading above the 108.00 handle. Volumes remain very low though and the two most recent trading days have the smallest ranges for the year.
Thoughts from the trading floor

The outlook for WTI from a technical perspective remains bullish. The past month has seen the May contract trading in the 97.00-107.00 range and has now built significant value at these higher prices. For the two most recent trading days the market has closed above early March’s high of 108.25. This has been done on relatively low volume though and the bulls will soon need to take the market higher once again. The rest of this week will be important to establishing the short term outlook of the contract. Any weak longs may look to cover should the market make a significant move back below the previous high, and this would take the market back into recent range. If the bulls can drive the market higher from here, we may soon see another significant leg up and will target the psychological 120.00 handle.

Last night the American Petroleum Institute reported that US oil inventories posted a draw down of 2797k barrels last week. This compares to the analyst estimate for the DOE number of a gain of 2000K barrels. The API gasoline showed a build of 568K, with the estimate for the DOE number currently showing a draw of 1900k. As always there will be some volatility around the release. The day’s close in comparison to either bullish or bearish data could be key.

For this week at least, there has been little new developments in the MENA region although fortunately there has been relatively few violent clashes. This however, has not seen the Oil futures retrace at all which backs the bullish stance of the market. There have been calls for OPEC to hold an extraordinary meeting to increase output but the messages coming from within some of the members countries suggest this isn’t on the cards. In the event it does happen, there is only likely to be a fast money move lower in Oil anyhow. The problem is not with supply and demand, as evidenced by Oil inventories in the US showing a build every week of 2011 so far. The Chinese central bank raised it’s key lending rate by 25 basis points on Tuesday, and although commodity markets initially sold off they broadly closed higher on the day.

Bull View

Even though this week has seen little in the way of new unrest on the MENA region, bulls have remained fully in control, keeping the market above March’s high of 108.25 over the past couple of days. They will look to take advantage of any further negative political news or a drop in inventories and take the market to new highs for the year.
Bear View

With volumes low, the Bears have struggled to sell the market even at previous resistance levels. They will look to prevent the market taking a leg higher from the 108.00 handle but need to see the market trading back below 100.00 before they can feel in control.
Futex View

We are still bullish the oil market and this week’s activity has only strengthened that view. Though we must be careful of sharp pullbacks on increased volume, we favour the market to eventually make another leg higher.

30th March 2011
Commodity Overview
Focus on Oil

Choppy market conditions continue in the oil market, further Middle East unrest has pushed Crude Light oil futures back above $106.00 handle. The market is still on edge, although has started to settle higher in terms of building value at higher prices.
Thoughts from the trading floor

From a technical perspective, WTI Crude Light Futures remain bullish. The market has traded the week between the 103.00-106.50 range, and although is a wide volatile range, the market has shown to remain firm above the 100.00-102.00 support zone. The steady creep higher in value this year, in spite of the volatility driven by geo-political events, suggests that there is further to go in terms of prices. Bulls will need to target the recent high prints of 108.25 on the front month contract if they are to capitalise on recent gains. As per the behaviour of the market of late, rallies followed by big squeezes lower before a recommencement of the rally, allows participants to wait patiently for pull-backs for buying opportunities. Bears looking for a potential major trend reversal will need the market below the 96.55-97.00 area. The market continues to favour bulls above here.

Last night the American Petroleum Institute reported that US oil inventories posted a gain of 5691k barrels last week. This compares to the analyst estimate for the DOE number of 1500K barrels. The API gasoline fell 1953K, as similar to the estimate for the DOE number of -2000K. With little of discrepancy between the DOE estimates and the API number, we anticipate the DOE release today to show volatility on the release of the numbers although the longer term direction will be determined by sentiment.

This week has seen a continuation of issues in the MENA region. However, the market has now settled into a steady rhythm of higher highs and higher lows. The recent consolidation above the 100.00 mark suggests that the market has started to accept these higher values for the year and look to break out higher. Most commodity markets have generally had a pullback this month before looking strong again. This has left them bullishly poised. The move higher in oil has been talked about being due to the MENA region unrest. However, looking at the broad basket of commodities which have looked strong despite talk of higher interest rates and a curbing of demand from China, there seems more afoot than the simple analysis of MENA unrest. It would seem that commodities may be beginning their last and final violent leg higher in the coming months.

Bull View

Bulls resurged back into the picture this week topping back above the $106 handle. The broader Middle East political environment looks increasingly disturbing, as civil unrest has sparked up in Yemen and continued protests in other countries. Buyers will feed on this fear and use it to their full advantage to pitch the market higher.
Bear View

Bears have struggled this week and gave back much of their previous gains; the tug of war match seems to still be favouring the Bulls. However if the market can retake the 96.50-97.00 area, bears will feel an major reversal will take place.

Futex View　

We are still bullish on the oil market. We are bullish commodities as a whole in the short-medium term, looking for a final blowout higher in the coming months.

23^rd March 2011

Commodity Overview
Focus on Oil

Choppy market conditions continue in the oil market; further Middle East unrest has pushed Crude Light oil futures back above the $105 handle. The market is still on edge and the recent adoption of a ‘no-fly zone’ in Libya has not quelled fears as a prolonged civil war seems increasingly likely.

Thoughts from the trading floor

From a technical perspective, WTI Crude Light Futures remain a highly news-driven market and continue to ignore many interim support and resistance levels. The market has however formed a large and choppy trading range between the $97 handle and around the $105 level. Trading between these levels remains volatile and momentum driven. At present, the momentum in the short-term appears to be in the bulls hands. Buyers will look to test recent annual highs of $108.25 and the break of $106.94 will be an almost certain precursor to such a move. On a more bearish note, a break of $97.02 could lead to a collapse back into the lower $90 region and any move past the $97 handle is likely to be aggressive.

Last night the American Petroleum Institute reported that US oil inventories posted a gain of 970k barrels last week. This compares to the analyst estimate for the DOE number of 1745K barrels. The API gasoline fell -7883K, as similar to the estimate for the DOE number of -4174K. With a lot of discrepancy between the DOE estimates and the API number, we anticipate the DOE release today to show a number outside of its likely range and produce a notable response.

This week saw coalition forces impose a ‘no-fly zone’ over Libya, with direct airstrikes aiding the rebels’ cause against Col Gaddafi’s forces. The Libyan leader himself delivered yet another defiant message declaring that he would defend his country at all costs. With no coalition ground troops likely to set foot on Libyan soil, the rebels’ war looks set to be a long one with long-term repercussions for oil supply from Libya. On the other side of the world, Japanese nuclear disruption is grabbing all the headlines, but what is not gaining much press is the disruption to oil and fuel supplies. Nine Japanese refineries were damaged in the quake and put-out of action leading a significant drop in fuel production. Also, closure of ports and harbours hampers oil shipments from the Middle East, which supply 80% of Japan’s needs.

Bull View

Bulls resurged back into the picture this week topping the $105 handle. The broader Middle East political environment looks increasingly disturbing as civil unrest has sparked up in Yemen and continued protests in other countries. Buyers will feed on this fear and use it to their full advantage to pitch the market higher. 

Bear View

Bears have struggled this week and gave back much of their previous gains; the tug of war seems to still be favouring the Bulls. However, if either a speedy resolution is achieved in Libya or a continued pledge to pump extra supply from Saudi Arabia, then this would help Bears’ achieve their goal.

Futex View　

We are still bullish on the oil market as the situation in Libya remains serious. If the rebels are successful in defeating Gaddafi it could take a prolonged civil war to achieve victory; the long-term stability of the Libyan oil supply looks worrying.

9th March 2011

Commodity Overview
Focus on Oil

It’s been another bumper week for the oil markets as prices have once again jumped higher under supply risk from the Middle East. WTI futures peaked at $106.94 and are now firmly cemented above the $100 handle. Brent Crude futures did not quite reach their recent highs of 119.79 last week, but are still holding strong above the $112 handle.   

Thoughts from the trading floor

From a technical perspective, WTI Crude Light Futures produced a significant buying wave last week, creating a strong platform above the $103.41 level. Bulls are comfortably in control with all trend analysis supporting further gains. Momentum indicators still warn of higher prices, yet are edging into a potentially over-bought condition. Bulls will be looking at retesting $106.41; after this resistance there is a void of levels until the psychological level of $110.00. Sellers will look to sneak under $103.41 and from here support levels lie at $99.96 and $98.48.

Last night the American Petroleum Institute reported that US oil inventories posted a gain of 3840k barrels last week. This compares to the analyst estimate for the DOE number of -364K barrels. The API gasoline rose 1653K, as similar to the estimate for the DOE number of -3950K. With a lot of divergence between the DOE estimates and the API number, we expect the DOE release today to show a number outside of its expected range and produce a significant reaction.

The oil market remains wary of the hopes that Saudi Arabia will increase their supply enough to offset the Libyan disruption. So far, Saudi has only increased its output by 0.4 million barrels/day, whereas it is assumed that at least 1 million barrels/day have been disrupted in Libya. The way the market is trading currently at these elevated prices, it seems that many market players are unconvinced that Saudi Arabia can significantly offset the supply crash. Spare capacity is mainly concentrated in a few countries within OPEC and its supply relies profoundly on Saudi Arabia’s ability to react efficiently. Many market traders will be looking for concrete evidence that extra Arabian supply will be delivered.

Bull View

Bulls fashioned another strong week, fortifying their position and turning the recent volatility into a more sustainable uptrend. With momentum on their side and the unrelenting crisis in Libya/ the rest of the Middle East, the trend is set to continue.  

Bear View

Bears were absent again last week and have done little to stand in the way of the current strong bullish trend. A move back below the $100 mark in WTI may signal the slightest hint of profit taking allowing a potential foothold for sellers to come back into the market.

Futex View　

We are still bullish on the oil market. Circumstances in the Middle East are still volatile with the ever-present threat of all out civil war in Libya.

2^nd March 2011

Commodity Overview
Focus on Oil

The Crude Oil market erupted last week under extreme volatility. The Libyan crisis and the capped oil production and distribution caused the market to spike higher. It topped at $103.41 for front month WTI under exceptionally poor liquidity conditions before retracing back below the $100 handle. 

Thoughts from the trading floor

From a technical perspective, WTI Crude Light Futures have experienced serious volatility over the past few trading sessions. The market has seen a break down in technical trading as fear gripped investors. The market spiked higher hitting £103.41 under extremely dire liquidity. The market has broadly entered a choppy trading range of $96.17 to $99.96, with a pivot point around $98.48. If captured by buyers or sellers, this could give a short-term direction to the market. Bulls will be looking to hold onto the current high prices, with resistance levels at $99.96, $101.00 and $103.41. Sellers will be looking to squeeze the market back down; a break below $94.98 could lead to snap selling back into the low $90 region. Please note that trading is expected to remain volatile. Traders should anticipate the overshooting of key levels and large momentum drives over the next week.

Last night the American Petroleum Institute reported that US oil inventories posted a gain of 519k barrels last week. This compares to the analyst estimate for the DOE number of 822K barrels. The API gasoline dropped -4898K, as similar to the estimate for the DOE number of -2798K. With not a lot of deviation between the DOE estimates and the API number, we expect the DOE release today to show a number inside of its expected range and to produce a subdued reaction.

As fighting in Libya continues, as much as 850,000 barrels a day of the country’s output has been shut down according to the International Energy Agency. Oil prices continue to rise as the unrest threatens to spread to other Middle Eastern countries. Iran, OPEC’s second largest producer, might be in danger next as protesters continued to clash with security forces in Tehran yesterday. Saudi Arabia’s Oil Chief, commented this week that the Kingdom is ‘ready to supply incremental changes in demand’ to cover any supply shortages from Libya.

Bull View

Bulls once again rode on the back of fear in the oil market to smash higher. It is all very well buyers making gains in the short term, but for a sustainable uptrend the market needs to build a strong value area foundation above the $100 mark.

Bear View

Bears were non-existent in holding back the market and rightly so with such bullish fundamental conditions. Sellers will look to creep back into the market if the Libyan crisis cools, rejecting some high prints in the market.

Futex View　

We are still bullish on the oil market. Conditions continue to be volatile which heightens both risk and opportunity. This situation is expected to remain in such a manner until the Middle Eastern tensions ease.

23^rd February 2011

Commodity Overview
Focus on Oil

The Crude Oil market spiked aggressively higher last week with the genuine and real threat of oil disruption through the Middle East. This week saw a dramatic increase in the social unrest in Libya - a key exporting country in Africa - and throughout the global oil trade network.

Thoughts from the trading floor

From a technical perspective, WTI Crude Light Futures spiked higher last week, smashing through all forms of resistance to post a new annual high of $98.48. The market exploded over two volatile trading sessions breaking important resistance at $92.57/84 and $94.89. Bulls firmly have the upper hand, but for this spike to turn back into a meaningful and sustainable trend, support will need to be defended at $94.89 and $94.35. If achieved, buyers will have an extremely strong foundation to build a bigger upward leg which will target the $100 mark. Sellers will hope the market has gone ‘too far, too fast’ and will look to drag the market back into the low $90 range. For a quick snap-back to happen, sellers will look to drop the market below $93.98. The $93.98 to $94.89 area will be closely fought over in the next week and will be a pivotal decision point for the market and should be closely watched.

Due to the US bank holiday on Monday, the American Petroleum Institute will report their numbers today. US oil inventories posted a drop of –354K last week. The gasoline number posted a gain of 1235K last time. The DOE numbers will be reported a day later with previous crude oil inventories coming in at 860K, Gasoline inventories posting 205K and the Cushing Crude a rise of 250K. It is important to keep a watch on Cushing data as the WTI/Brent spread is particularly sensitive to the numbers.

Oil surged higher this week as anti-government violence escalated dynamically in Libya, with the constant threat of oil disruption. At least 250 people have died in Tripoli - the capital of Libya - which has Africa’s largest oil reserves. Colonel Gaddafi has relentlessly refused to step down as leader, which is likely to signal more violence over the next week, adding to the ongoing volatility in the oil markets.

Bull View

Bulls’ violent drive has snapped the market back onto an upward track. Bulls will now have all eyes set on the $100 mark in WTI. It will be important for bullish forces to strengthen their gains and hold above the $93 handle. 

Bear View

Bears had no chance in trying to hold back to the violent bullish fundamentals for the oil market. Buying dismissed all resistance levels - spiking to the $98 handle – and sellers now hope the market will become more rational and retrace much of the move. 

Futex View　

We are still bullish the oil market. Market conditions are still extremely volatile and are expected to remain in such a manner until Middle East tensions cool.

2^nd February 2011

Commodity Overview
Focus on Oil

Fear gripped the Crude Oil market last week, with extreme political and social unrest in Egypt driving prices higher in several volatile trading sessions. Investors became particularly troubled by the possible long-term disruption to oil flows through the Suez Canal. Such pressure caused Brent Crude Futures to probe back through the significant $100 mark.

Thoughts from the trading floor

From a technical perspective, WTI Crude Light Futures completely reversed the previous damaging sell-off. Buying pressure came in force and drove the market back through every resistance level with ease, producing a $7.5 bounce in a straight line. Momentum indicators snapped back into positive territory highlighting showing the keen new buying interest. Bulls have aggressively regained control and have shown the fragility in the previous bearish pressure in the market. Buyers will aim to consolidate the aggressive move and hold onto their gains. They should look to build a stable base above $90.50 or at the very least hold onto strong support at $88.45. Ultimately, bulls will aim to break above $93.46 - the significant daily double top. Sellers will hope the recent rally will retrace as quickly as it advanced. A break below $88.45 would be a significant victory for the bears and could be a genuine trigger for further losses back down to the mid $80 trading range.

Last night the American Petroleum Institute reported that US oil inventories posted a gain of 3770K barrels last week. This compares to the analyst estimate for the DOE number of 4836K barrels. The API gasoline rose 667K, as similar to the estimate for the DOE number of 2404K. With not a lot of deviation between the DOE estimates and the API number and the current focus on the Egyptian crisis, we expect the number today will produce a restrained reaction.

Brent Crude Futures traded above $100 for the first time in over two years on Monday. The surge came largely on the back of Middle East insecurity, potentially causing disruption to the Suez Canal. However, this temporary rally in the market could be short lived. Only around 4.5% of total global oil supplies flow through the Suez and its neighbouring pipeline Sumed. Short-term transport disruption would have no impact on underlying oil output but could shift oil prices around the region. Traders will be keeping a keen eye on the oil prices over the next few days and assess whether the current move is over-exaggerated or if it really does reflect underlying fundamentals.

Bull View

Bulls have succeeded in reversing the previous week’s sell off.  With momentum back on their side and the current dire fundamental situation in the Middle East, buyers will be looking for the market to follow-through in the next several trading days.

Bear View

Bears have once again lost their foothold in the market. Many sellers may feel that their positions were unlucky to be caught out by such an aggressive reaction to fundamental news. They may feel that the move is an overreaction and that the market is in an obvious place to fade the recent rally.

Futex View　

We are still bullish on the oil market. However, with recent political unrest in the Middle East, we believe the market is set for some extremely volatile trading sessions.

1^st February 2011

Bond Overview

The bearish tone continued last week as bonds drifted lower, again breaking new monthly lows hitting 123.17. However, global markets began to take a ‘risk averse’ tone as investors fretted over the political unrest in Egypt and potential instability in the region as a whole. Of particular concern was the threat of disruption to trade through the Suez Canal, which caused oil markets to spike higher and equities to sell off on Friday.

Thoughts from the Trading Floor

From a technical perspective, German Bunds continued to glide lower last week as selling pressure mounted. However, buyers found brief relief as Bunds bounced late in Friday’s trading session. The long-standing trend is still pointing to lower territory, with bears looking to test 122.49 and 122.11, a level which hasn’t been touched since April 2010. Bulls have yet to make an impression in the market and both the chart posture and momentum indicators point against any bullish gains. Buyers will have to regain their long lost rhythm and prompt some new buying pressure with the initial resistance barrier coming in at 124.36. If this level is broken, buyers may gather in force for an overdue relief rally with important resistance levels lying at 125.05 and 126.48. As a note of caution, as seen in previous short-term retracement rallies, the buying forces are aggressive and fast and can snap back momentum indicators to a bullish bias very quickly.

In the global picture this week all eyes will be on Egypt and the Middle East. Political unrest in Egypt caused Egyptian CDS to blow out on Friday to over 450 bps. Main fears are of disruption to the Suez Canal - a key artery to global trade and oil distribution – and UK and European companies which have exposure to Egypt, both of which added to equity weakness in trading over the last couple of days. This uncertainty may lead to a ‘flight to quality’ across asset classes as investors dive into the safest investment options. In other news, the ECB will meet again this week and traders will be all ears for further inflation concerns from Trichet. The US employment number follows the next day, which is always a key barometer of the US’s economic health and likely to inject further volatility into the markets.

Important Events this Week

• Tuesday: ISM Manufacturing (US)

• Wednesday: ADP Employment Change (US)

• Thursday: ISM Non-Manufacturing (US), ECB Rate Announcement

• Friday: Change in Non-farm Payrolls (US)

Bull View

Bulls have been on the sidelines for weeks and have not challenged the bearish bias in the market for a while. Bulls will be hoping for a meaningful recovery soon as it is well overdue. Buyers will be looking for key catalysts in the global turmoil in the Middle East with the hope that they will spark a flight to safety and a rush into bonds.

Bear View

Bears continue to flourish and make steady advancement in lifting yields. Bears will optimistically aim for a capitulation in the market. As the final defence for buyers snaps, sellers could quite easily achieve 3.5 percent yields in German 10 year Bunds. 

Futex View

We maintain our bearish outlook on the bond market. The bearish trend has dominated for the last 5 months and the price action is still ticking lower. There seems to be no reason to change our analysis.