Brent Crude Hits 17 Month Low

On June 19, 2012 by TradingDesk
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Markets continue to mark time ahead of the Fed meeting tomorrow, with little significant movement in stock markets across the globe. Pledges by 5 emerging market nations to increase funding commitments to the IMF following the G20 meeting has increased hopes of a coordinated effort by governments and central banks to stanch the wounds of Europe’s financial crisis.

Energy prices were led lower by Brent crude Monday, which hit a 17 month low. US products did manage to hold technical support at the bottom end of their June trading ranges, leaving us back in a trading no-man’s land, waiting for further direction. The Saudi’s took little time naming a replacement for the crown prince who died over the weekend, and Iran continues in a 2nd day of talks over its nuclear program, both of which help reduce the risk premium in oil prices. Charts continue to suggest that lower prices are likely, and we’ll have to wait with everyone else to hear what the Fed has to say about that.

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Energy Selloff Unlikely Ahead of Wednesday FED Announcement

On June 18, 2012 by TradingDesk
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In a move eerily similar to a week ago, financial markets surged Sunday night as the latest bullet in Europe was dodged, when a “pro-bailout” party won the Greek election. The mood cooled quickly however – there are still many doubts that the Greek’s can form a government, socialists won the majority of the French parliament, and Spanish debt rates surged as delinquent loans hit record highs – and we are now trading lower across the board. Now that the election drama is behind us, all eyes will turn to the FED, and what policies they may come up with to calm the fears of financial markets.

Energy prices remain stuck in their sideways pattern, and continue to follow the lead of global stock markets. The unexpected death of the heir to the Saudi throne over the weekend has not appeared to have an impact on prices, although this still could be a bullish signal if a succession plan isn’t announced soon. Although both supply & demand fundamentals, and technical studies continue to favor the bears, given the hugely bullish impacts of prior central bank intervention, it seems unlikely that we’ll get a major selloff ahead of the FED’s announcement Wednesday.

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TRADERS AND BUREAUCRATS WAITING WITH BAITED BREATH…

On June 15, 2012 by TradingDesk
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News of actual central bank action – in the UK – and rumors of potential central bank action – everywhere else – sent stocks soaring Thursday afternoon. Traders and bureaucrats worldwide are waiting with bated breath for the results of the Greek election Sunday, the resultant central bank action, and then FED’s policy meeting next Tuesday/Wednesday. Meanwhile, economic data continues to show weakness across the globe. This morning the NY Fed’s manufacturing survey slipped to the lowest level in a year, the question is whether or not this bad news is bullish as the rumor mill will surely point to yet another reason why the FED needs to act aggressively now to save the world.

Energy prices remain in their indecisive trading ranges, which are roughly 1/3 of the size of the ranges we saw a month ago. We’re expecting more choppy aimless trade today, as it’s unlikely anyone will be willing to stick their neck out too far ahead of the weekend. The past two weeks of quiet trade set up a chart pattern that’s a bit like a coiled spring, and whichever way we break next week is likely to be a sharp move.

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Energy Prices Follow Choppy Action of Equities

On June 14, 2012 by TradingDesk
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Indecision ruled again Wednesday, as another morning rally turned into afternoon losses. If the pattern continues today, the overnight losses we’ve seen so far should turn into gains by the end of the day. It’s becoming more clear that traders are hesitant to make major moves ahead of the FED meeting next week, so we’re expecting the choppy, aimless action to continue. Meanwhile, the European disintegration continues, as Spanish bonds are trading at record high yields after more credit downgrades and after reports that their banks already borrowed over 300 billion Euros from the ECB in May cast doubts on the likelihood that the weekend’s 100 billion bailout package will be enough to make a difference. Jobless claims in the US spiked again to 386,000 over the past week, and CPI dropped by the most since December 2008.

Energy prices continue to follow the choppy action of equities, although the bears continue to have a slight edge. Brent crude settled at its lowest levels since January 2011 yesterday, and both RBOB and HO remain poised to test the lower end of their June trading ranges. The DOE report showed a rebound in demand for both sides of the barrel, although production continues to outpace domestic consumption by over 1 million barrels/day, proving how important the newfound role of exporter has become to the US refining market.

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DOE Weekly Report June 13, 2012

On June 13, 2012 by TradingDesk
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Indecision in Equities Influencing Energy Prices

On June 13, 2012 by TradingDesk
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US Markets had another rollercoaster session Tuesday, with morning losses in stocks turning into sharp gains in the afternoon, and when the dust settled both the S&P 500 and DJIA were left essentially unchanged for the week. The uncertainty continues today, with Asian markets higher, European markets roughly flat, and US markets pointing lower. In today’s economic news, the Producer Price Index (PPI) dropped by the most in 3 years, and consumer spending slipped .2% in May, both influenced heavily by the drop in energy prices during the month. The news has had little impact on the markets which remain fixated on central bank action, or lack thereof.

Energy contracts had a mixed performance yesterday, with WTI bouncing while Brent and refined products fell yet again. Today we’re seeing just the opposite, WTI is down nearly a dollar, while Brent is holding on to slight gains. As long as indecision reigns in stocks, I suppose we shouldn’t be surprised to see it in our market either. Today’s DOE report, and tomorrow’s OPEC meeting, are both expected to show that the US, and the world, has ample supply of petroleum, especially in an environment of sluggish demand. Prices remain range-bound, and it still seems likely that a financial headline, rather than a physical oil supply headline, will be what ultimately sparks the next major move.

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Energy Futures Having A Difficult Time Finding Direction

On June 12, 2012 by TradingDesk
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It took just under 3 hours Monday for Spanish bonds to wipe out the gains they’d achieved on the back of the weekend bank bailout. Once the bond market had given up, most financial markets followed suit. The Dow Jones had a dramatic 250 point intraday turnaround, and the 10 year US treasury yield dropped 14 points as optimism turned to doubt and traders headed for safety. Without a clear trend in place for stocks or commodities, expect this headline driven, manic price action to continue near term.

Energy prices made their own impressive reversals yesterday, with both RBOB and HO dropping roughly 13 cents from their overnight highs. Both WTI and Brent fell more than $5 from the bailout bounce. Like most other markets, energy futures are having a difficult time finding direction, with either a decisive break below $2.60 in products, or above $2.75 needed to provide further direction. Without a major news event, expect the choppy action to continue ahead of the Fed’s FOMC meeting next week.

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Technical Studies Continue To Suggest Larger Trend Is Down

On June 11, 2012 by TradingDesk
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News that Euro-zone leaders have agreed to use $125 Billion to bailout Spain’s troubled banking sector sent most global markets sharply higher overnight, although the buying has cooled significantly as many questions remain about the health of Spain and the Euro-zone as a whole. Chinese data showed that both exports and imports were strong last month, a relief to many who worried that last week’s rate cuts were a preemptive strike on a weak economy.

Refined products were up 7 cents overnight, as trader’s breathed a sigh of relief that Europe’s can had been kicked a bit further down the road, but have since pulled back sharply and are trading up roughly 1%. After having held support at the lower end of the recent range last week, this week sets the stage for a test of higher levels, with both RB and HO resistance layered in between $2.70 and $2.80. The quick 5 cent pullback we’ve seen already today shows that buyers lack some conviction, and technical studies continue to suggest that the larger trend is down.

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Chinese Fireworks Fizzle…

On June 8, 2012 by TradingDesk
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The Chinese rate cut rally was short lived Thursday, as Ben Bernanke disappointed traders hoping for another round of quantitative easing – in his testimony before congress he presented a case that it was time for legislators, not the FED, to act. Equity and commodity markets wiped out large morning gains, and have continued to sell-off through the overnight session. Proving that central bank action can be a double-edged sword, some Asian stocks are off 2% or more today because the PBOC’s rate cut is seen as a sign that the government is “panicking”.

Now that the week’s gains have been wiped out, energy prices are poised to test their recent lows again, with technical support in the mid $2.40-$2.50 range the next downside target. $82 is pivotal for WTI, with a break there setting up a move to $75.

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Chinese Fireworks

On June 7, 2012 by TradingDesk
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The People’s Bank of China surprised markets this morning by cutting borrowing and lending rates, for the first time since 2008. While all eyes have been on US and European central banks, the Chinese move wasn’t expected – just a few weeks ago the PBOC said that they would not provide additional stimulus to the markets – so it provided a quick spike in equity and commodity markets. The week’s theme of central bank watching will continue later today when Ben Bernanke testifies before congress, although any decision on FED action typically won’t happen before the FED’s open market committee meeting in two weeks.

Energy prices ended higher Wednesday, but were well off their intraday highs. Prices were falling again overnight before the Chinese news sent them higher. At this point, it’s still too early to say that the week’s move is anything more than a correction of a larger downtrend. Unfortunately, we may have to wait the full two weeks for the FED to act before we have a better feel for what the next major move will be.

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