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.

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.

26^th January 2011

Commodity Overview
Focus on Oil

The Crude Oil Market collapsed lower last week, plunging over $7 from the daily double top high at $93.46. The move was triggered by speculation OPEC may boost output, which would be their first real action in response to the strengthening oil market witnessed over the last several months.

Thoughts from the trading floor

From a technical perspective, WTI Crude Light Futures slumped lower over the past few days, slamming through the $90 handle with ease and all major support levels to touch a low yesterday of $86.12. All momentum indicators spiked into negative territory, producing a very strong downside bias with further losses likely. Sellers will be looking to target the next key daily support level at $86.75; a move back into the lower $80 range would be highly likely. Bulls will be looking to snap the market back higher and put the brakes on the current sell-off. Buyers will be looking to squeeze out some weak sellers under the premise of the market being potentially ‘over-sold’. Bulls will be looking to recapture $88.45 and $89.76, which will be a pivotal area over the coming week.

Last night the American Petroleum Institute reported that US oil inventories posted a gain of 2120K barrels last week. This compares to the analyst estimate for the DOE number of 2617K barrels. The API gasoline rose 1720K, as similar to the estimate for the DOE number of 4443K. 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 produce a subdued reaction

The Saudi Arabian Oil Minister said yesterday that some members of the Organization of Petroleum Exporting Countries may boost production capacity to preserve the global “supply-demand balance.” Such remarks come after recent fears that oil will tip $100 and not on the back of supply tightening. In other news the WTI-Brent front-month future spread hit as much as -$9.50 on Monday - the record for the differential stands at -$10.67, made on February 12, 2009.

Bull View

Bulls have been failed to hold onto their elevated position over the last week, unsuccessfully defending strong support at $89.76 and $88.45. Buyers need to mount a recovery and cut short current bearish momentum. Bulls will be looking to recover and build some sort of a foothold back above $89.76, which will be essential over the next few trading days if bulls are to maintain their grip on the market.

Bear View

Bears regained the upper hand in the market breaking several significant daily support levels to sustain their current pressure. Bears will be looking to consolidate gains and hold the market below $88.45. If achieved, sellers should begin to look at sliding the market back into the mid-$80 range.

Futex View　

We are still bullish on the oil market and believe the current sell-off is approaching an over-sold buying opportunity. However, we remain cautious of a potentially deeper follow-through from the recent sell-off.

24^thJanuary 2011

Equity Index

Overview

Last week the US equities lost ground for the first time in 2011 as fears of the Chinese economy overheating gripped the market. This week traders have a lot to get their teeth into; we will see the releases of the latest GDP numbers in the UK and US as well as the FOMC Rate decision. In addition earnings season continues with many US firms including Microsoft and Caterpillar releasing figures.

Thoughts from the trading floor

From a technical perspective the S&P 500 continues to look strong, however at current they are struggling to hold above support at 1277.00. A failure to hold above 1277.00 could see the market fall back to 1245.50 with further support found at 1216.00.

In the last few weeks we have seen Trichet warn of short term inflation risks at the latest ECB press conference whilst UK inflation continues to rise to worrying levels. This poses the central banks with a serious dilemma, it is clear that the main drivers in the recent inflation rise are commodity and Oil prices; not overheating domestic economies. In such instances we can consider that the inflation is being imported and rate rises will simply sacrifice domestic growth to the benefit of countries currently better positioned. However the central banks mandate stipulates that they must control inflation, to do so their main tool is interest rates. Rate changes are a crude tool which fail to provide the subtlety central bankers crave but at this stage they find themselves with few options.

If inflation continues to rise particularly in the UK we may see the BOE forced into a rate move they struggle to justify from a macro growth perspective but they deem necessary to stave off price rises. This would have a serious negative impact on any recovery as it would put overwhelming pressure on mortgage and credit markets placing substantial downward pressure on house prices and spending levels. This would undoubtedly have a large negative impact on equities as future growth levels would be revised much lower. The main way that such a scenario may be avoided is if we see a drop off in world commodity prices, the most likely catalyst for this being a slowing in the Chinese economy. This could either come about naturally or more likely through aggressive tightening in monetary policy. In either scenario world equity markets would take a nose dive as so much current world growth levels are associated with China. Considering all of this any further signs of inflation in the UK or Europe may be the signal that the current bull market is reaching its peak.

Important events this week.

• Tuesday: GDP (Advanced) (UK), Consumer Confidence (US)
• Wednesday: New Homes Sales (US), FOMC Rate Decision
• Thursday: Durable Goods Orders (US)
• Friday: GDP (Advanced) (US)

Bull View

Bulls will now be targeting resistance at 1313.50 hopefully aided by strong data releases this week. Their main concern will now be profit taking as investors look to realise profits after 18 months of strong performance.

Bear View

Bears will desperate to see the S&P drop below 1277.00 opening the door for a break lower. Continued inflation fears could support their cause.

Futex View

We believe that the current bullish trend in equities is coming to an end and a pullback is around the corner. When it finally arrives it will likely be aggressive; further European sovereign concerns may provide the catalyst for the move.

19^th January 2011

Commodity Overview
Focus on Oil

The Crude Oil market clawed higher last week double topping at $93.46/44. The market tracked higher on Dollar weakness, with Brent Crude nearly hitting $100 stalling just shy at $99.20.

Thoughts from the trading floor

From a technical perspective, WTI Crude Light Futures pushed higher last week but lacked sufficient power to break and hold current annual highs at $93.44. Momentum indicators have a majority bias for more upside gains in the short to medium-term. Bulls will have to break $93.44/46 and press for long-term resistance at $94.02; if bypassed the floodgates will open for a surge higher with little in the way of resistance before the $100 mark. Bears have failed to make an impression on the market over the last week and are in a vulnerable position. Sellers will need to break crucial support at $91.47 and $90.49. Only if these two levels are busted will the market sentiment slowly turn to a short-term bearish bias. For long-term gains bears will have to slump the market back down towards $88.45 and $88.11 which would be the trigger for large profit taking from long positions. 

Due to the US Bank Holiday on Monday the American Petroleum Institute will report their numbers today and DOE numbers will be reported on Thursday. Last week’s API number for Oil Inventories is +57K and the DOE Crude Oil previously was –2154K. API Distillate inventories came in at +1554K last with DOE Distillate inventories printing 2652K.

An interesting situation has developed in global oil markets with a dramatic widening in the gap between WTI and Brent Crude futures. Brent Crude futures are trading at around a $6+ premium to WTI, with Brent oil nearly touching $100 last week. The Brent futures curve has also flattened, even entering backwardation in the front end, while WTI has remained firmly gripped by contango (i.e. where future prices are higher than spot.) In general, a Brent premium is nothing new as WTI has a different delivery structure to Brent at the Cushing stage. However, this does not fully explain a distortion of this scale. There is a general consensus that Brent is highly overvalued. From a traders perspective it is worth considering selling Brent oil rather then WTI if you have a negative outlook on the oil market, as the expected realignment of WTI and Brent will give a better risk: reward scenario.

Bull View

Bulls have succeeded in holding onto higher ground over the last week, building a stable value base above $91. Bulls will be aiming to smash the daily top at $93.44/46 and push onto capturing the $94 handle and ultimately the $100 target.

Bear View

Bears have all to play for as they need to make their impression on the market before the buying pressure becomes too great. Bears will look for Dollar strength to squeeze the market back into a more indecisive sub-$90 trading range.

Futex View　

We are still bullish on the oil market. The up-trend is still strong and we will stick with our position until the widely talked about $100 target is hit or until the market proves us wrong.

5^th January 2011

Commodity Overview
Focus on Oil

The Crude Oil Market opened the year on a positive note, hitting 27-month highs. However, this bullish surge was short-lived as Oil markets saw an aggressive sell-off yesterday producing a $4 drop in WTI Futures. The move was largely in response to fierce Dollar Index strength.

Thoughts from the trading floor

From a technical perspective, Crude Light futures spiked higher on the first trading day of the New Year before selling-off to produce a bearish daily candlestick formation. The chart view shows a strong trend with the market still sailing on a bullish tack in the medium/long term. However, after the powerful wave of recent selling in the market, bears will be looking to capitalise on their advantage and seize market control. Sellers will look to target support at a strong value area of $87.62 to $87.40. If this area is swept aside, long positions will be heavily squeezed with the potential for the market to drop quickly back to $86.57 and $86.07. The dominating bullish presence in the market took a large dent yesterday. Buyers will have to stabilise the market over the coming week to regain their control. Bulls will look to retrace back up towards the $90 handle before another buying wave can commence.

Last night the American Petroleum Institute reported that US oil inventories posted a large drop of -7511k barrels last week. This compares to the analyst estimate for the DOE number of -2000K barrels. The API gasoline rose 353K, similar to the estimate for the DOE number of 500K. 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.

Crude futures surged to two-year highs on Monday amid confidence in increased global demand after the US economy showed more signs of recovery. However, yesterday proved how fickle current market sentiment is and how fast opinion changes. Futures dropped the most in seven weeks yesterday amid speculation that a recovery by global economies will curb demand for commodities as an alternative investment to currencies and equities. The sell-off was accelerated by a strong dollar rally as investors dived into the Greenback over riskier assets.

Bull View

Bulls will look to gain ground and stabilise the market if the fresh yearly highs are to be retested. Buyers will need to regain the $90 handle before short-term momentum can return back into their hands.

Bear View

Bears have gained an initial short-term advantage in the market and the violent sell-off yesterday will cast some serious doubt in buyers’ minds for the coming week. To capitalise on this sellers will look to break $87.40.

Futex View　

We are still bullish on the oil market. We will be looking to buy dips and look for dollar weakness to time fresh oil trades.

15th December 2010

Commodity Overview
Focus on Oil

The Crude Oil market remained contained within a tight trading range last week although prices stayed on the strong side, thanks to a slightly weaker US dollar. Volume in the front month NYMEX Crude Light futures was lower than average with the market heading towards the Christmas period.

Thoughts from the trading floor

From a technical perspective, the market has consolidated into a potential bullish continuation pattern. The market has developed a value area between $89.49 and $87.10; a clean break of either of these levels will indicate the subsequent short-term direction. The market is still clearly under bullish influences and a change in trend remains a low possibility. Exploratory buyers will look to target December’s high of $90.75, at which point the floodgates should open towards $93.31. A failure to convincingly breakout of the current sideways range and bears will seize the opportunity to capitalise on this failed chart pattern and send prices lower. Key support levels lie between $86.07 and $85.75.  This region is likely to witness robust buying as second chance bulls re-enter the market.  However, a break below could accelerate selling down to $83.96 and $82.98.

Last night the American Petroleum Institute reported that US oil inventories posted a drop of -1442k barrels last week. This compares to the analyst estimate for the DOE number of -3819K barrels. The API gasoline rose 2415K, similar to the estimate for the DOE number of 3811K. With little difference 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.

Analysts at Goldman Sachs speculated this week that a drop in OPEC spare production capacity will signal a “second-stage” recovery in the oil markets, with an estimated target of $100/barrel to be reached by the second half 2011. With expected global oil demand to remain strong at around 2 million barrels/day, Goldman Sachs believes the market will begin a transition back into a bullish stance. Recently, supply inventories have declined which has been supportive of higher prices.

Bull View

Bulls preserve their grip on this market and will be looking to spring out of the recent consolidation. With fresh moves lower in the US dollar, bulls have solid foundations for this scenario playing out.

Bear View

 Bears will be hoping to be allowed back into the market, with the market trading at a key junction. Bears will be looking to break the bull’s foothold and drop the market lower, back into the mid $80 trading zone.

Futex View　

We have taken a bullish outlook on the oil market. The present trend and momentum point to higher prices and we will be looking for a decisive break into the $90 range with the grand target of $100.

The Crude Oil Market rallied aggressively last week. NYMEX Crude Light January futures topped $90.75, printing a 26-month front-month high. In the face of current volatility, Oil futures have put in a very strong performance matching global equity futures which have also been breaking yearly highs. (more...)