DOE Weekly Report

On June 6, 2012 by TradingDesk
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Central Bank Actions The X Factor In Energy Prices

On June 6, 2012 by TradingDesk
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Energy prices are bouncing, along with the Euro and US Equity futures, as hints of possible central bank liquidity injections are spreading across the globe. This morning’s announcement from Mario Draghi suggests that Europe’s central bank is not yet prepared to release any significant stimulus measures, which means all eyes will quickly focus back on the US Federal reserve. Declining industrial production in Germany and Spain, along with a broad downgrade of German banks overnight continues to put pressure on the bureaucrats to do something to calm market fears.

The results of this bounce in energy prices will tell us a great deal about the larger trend. If products can rally back above resistance in the low to mid $2.70s, and if WTI can break $90, then we may have just witnessed our spring correction in prices, before a longer term bull trend resumes. If we are witnessing the beginning of a larger bear market, these pops will be treated as selling opportunities for long money trapped at much higher values and won’t last long. Technical and Fundamental issues continue to favor lower prices over the next several weeks, with central bank action remaining the key X factor just as it has been the past 2 summers.

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Euro Yo-Yo Wreaking Havoc On Markets

On June 5, 2012 by TradingDesk
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The Euro Yo-Yo is back wreaking havoc on financial markets this week, with rumors sending the currency – and stocks/commodities along with it – on a volatile ride. After a bounce Monday afternoon, a trio of European headlines – contracting PMI across the continent, declining manufacturing orders in Germany, and Spain capitulating and admitting that it needed EU bailout funds since capital markets were closing to it – sparked a modest sell off across most risk assets. News that the finance leaders of the G7 (7 largest industrial nations) were having an emergency conference call to discuss the situation wiped out those losses as hope springs eternal that a solution can be found.

Beyond the Euro theater, energy prices finally managed to bounce Monday, and appear headed for a period of consolidation after the furious selling of the past few weeks. Charts continue to suggest that WTI crude will make a run at $75, and products at $2.50 at some point, but several indicators are at extremely over-sold levels (most notably the 14 day RSI on heating oil, which is at a 30 year low) so a near term bounce is certainly possible. Expect choppy action for the time being, as each headline will be over analyzed for clues on what central bankers may or may not be doing.

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Slip Sliding Away…

On June 4, 2012 by TradingDesk
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Energy prices are slipping again, setting new 2012 lows for the 3rd consecutive trading session. A week ago, WTI was at $92, HO was $2.85 and RBOB was $2.90. WTI is at $82 this morning, and both products have traded below $2.60. Although significant, the move lower has been orderly thus far – in comparison to the moves in May of 2010 and 2011.

Speculative long interest in WTI and RBOB remains near all-time highs for this time of year, which could mean that the pace of selling picks up if trapped longs are forced to liquidate. Interestingly, the non-commercial HO position has turned negative for the first time in nearly two years, so there is certainly a conflicted opinion within the energy complex.

The global slowdown in economic activity and lack of Iranian sabre-rattling both suggest a fundamental reason for prices to test their lows from 2011, and while technical studies are oversold short term and due for a bounce, charts do suggest that we’ll at least try and trade down to $2.50 on products before we’re done.

The wild card in essentially every market right now is whether or not there will be a coordinated effort by central banks/governments to provide a solution – temporary or otherwise – to the debt crisis. Regardless of the long-term impact these actions may have, there is no argument that prior actions have caused sharp rallies in equity and commodity values.

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The Melt Down Continues

On June 1, 2012 by TradingDesk
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The melt down continues, with energy futures dropping 2-3% today following their worst monthly performance since the credit crisis of 2008. Another round of negative macro-economic data from China and Europe during the overnight trading session sparked the move lower, then a disappointing Jobs report in the US doubled losses in a matter of seconds.

All energy futures are now trading at their lowest levels of the year, and there is little technically keeping us from dropping another 15-20 cents in products to test our lows from 2011. With all the negative news out in the open, and with products already having dropped 50+ cents in a month largely priced in to the markets, expect all eyes to focus on what the central banks will do to stem the tide of selling.

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