Where is Crude Oil Headed on Wednesday?

CNBC's Sharon Epperson discusses the day's activity in the commodities markets, and looks ahead to where oil is likely headed tomorrow.




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Crude Oil Market Commentary For Tuesday Evening

Crude oil closed up $0.81 at $83.94 a barrel today. Prices closed near mid-range today and saw a corrective bounce from recent strong selling pressure. No serious chart damage has been inflicted in crude, but the bulls need to show more power soon to keep the uptrend on the daily bar chart in place. Crude oil bulls still have the overall near term technical advantage.

Natural gas closed up 4.6 cents at $4.073 today. Prices closed near the session high today on short covering in a bear market. Bears still have the solid near-term technical advantage. The next upside price objective for the bulls is closing prices above solid technical resistance at the April high of $4.421.

The U.S. dollar index closed up 3 points at 81.13 today. Prices closed nearer the session high today in quieter trading. The bulls have the overall near term technical advantage. Bulls' next upside price objective is to close prices above solid technical resistance at the April high of 82.06.

Gold futures closed up $4.70 at $1,140.50 today. Prices closed near mid-range today and saw a corrective bounce from selling pressure last Friday and on Monday. Higher crude oil prices added to buying interest in gold today. Uncertainty regarding the Goldman Sachs fraud charges from the SEC seem to have abated a bit, which also supported buying interest in gold today. No serious chart damage has occurred in gold, but the bulls need to show more power soon to keep the uptrend on the daily chart in place.

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Phil Flynn: Goldman Gets Rolled

Oil prices are beginning to shake off the fall-out from the Goldman Sachs fraud allegations yet at the same time, the market is worried about the longer term ramifications of these charges. Set aside the fact of Goldman’s guilt or innocence at this point, it's the larger issue of confidence in the overall market place that raises the largest concern. The timing of these charges that we now know was voted at the SEC along party lines makes one worry about the political influence over the market place. If The SEC is being controlled by the government to push financial reform it could be more dangerous to the economy than Goldman’s alleged fraud.

The Wall Street Journal Editorial page that I wanted to quote yesterday until my computer crashed stated, “The Securities and Exchange Commission's complaint against Goldman Sachs is playing in the media as the Rosetta Stone that finally exposes the Wall Street perfidy and double dealing behind the financial crisis." Our reaction is different: Is that all there is? After 18 months of investigation, the best the government can come up with is an allegation that Goldman misled some of the world's most sophisticated investors about a single 2007 "synthetic" collateralized debt obligation (CDO)? Far from being the smoking gun of the financial crisis, this case looks more like a water pistol. The Journal said, “Let's deconstruct the supposed fraud, in which Goldman worked with hedge fund investor John Paulson, who wanted to bet on a decline in the subprime mortgage market. The SEC alleges that Goldman let Paulson & Co. dictate the mortgage backed securities on which investors would speculate via the CDO, and then withheld from investors Paulson's role on the other side of the transaction.

The SEC also alleges that Goldman deceived ACA Management a unit of the largest investor on the other side of the deal and the firm officially selecting which mortgage backed securities everybody would bet on into believing that Mr. Paulson was actually investing in an "equity" tranche on ACA's side of the deal. Regarding the second point, the offering documents for the 2007 CDO made no claim that we can find that Mr. Paulson's firm was betting alongside ACA. The documents go so far as to state that an equity tranche was not offered by Goldman, as ACA must have known since it helped put the deal together and presumably read the documents. The SEC complaint itself states that ACA had the final word on which assets would be referenced in the CDO. And in some cases, ACA kicked out of the pool various assets suggested by the Paulson firm.

More fundamentally, the investment at issue did not hold mortgages, or even mortgage backed securities. This is why it is called a "synthetic" CDO, which means it is a financial instrument that lets investors bet on the future value of certain mortgage backed securities without actually owning them. Yet much of the SEC complaint is written as if the offering included actual pools of mortgages, rather than a collection of bets against them. Why would the SEC not offer a clearer description? Perhaps the SEC's enforcement division doesn't understand the difference between a cash CDO—which contains slices of mortgage backed securities and a synthetic CDO containing bets against these securities.

More likely, the SEC knows the distinction but muddied up the complaint language to confuse journalists and the public about what investors clearly would have known: That by definition such a CDO transaction is a bet for and against securities backed by subprime mortgages. The existence of a short bet wasn't Goldman's dark secret. It was the very premise of the transaction.” The Journal also points out that, “By the way, Goldman was also one of the losers here. Although the firm received a $15 million fee for putting the deal together, Goldman says it ended up losing $90 million on the transaction itself, because it ultimately decided to bet alongside ACA and IKB. In other words, the SEC is suing Goldman for deceiving long-side investors in a transaction in which Goldman also took the long side. So Goldman conspired to defraud . . . itself?

The Journal asks, "Did Goldman have an obligation to tell everyone that Mr. Paulson was the one shorting subprime?" Goldman insists it is, "normal business practice" for a market maker like it not to disclose the parties to a transaction, and one question is why it would have made any difference. Mr. Paulson has since become famous for this mortgage gamble, from which he made $1 billion. But at the time of the trade he was just another hedge fund trader, and no long side investor would have felt this was like betting against Warren Buffett.

“Not that there are any innocent widows and orphans in this story. Goldman is being portrayed as Mr. Potter in "It's a Wonderful Life," exploiting the good people of Bedford Falls. But a more appropriate movie analogy is, "Alien vs. Predator," with Goldman serving as the referee. Mr. Paulson bet against German bank IKB and America's ACA, neither of which fell off a turnip truck at the corner of Wall and Broad Streets."

Some would argue that the global economy suffered when the housing bubble burst yet at the same time are these financial instruments to blame or is the government, the great enablers, and their policies that allowed the housing bubble to develop? The IBD points out that the financial reform bill fails to address some of the root causes of the financial crisis like, “The 1977 Community Reinvestment Act (CRA) was used as a bludgeon to force private banks to lend to unworthy bowers. Politicized (Government Sponsored Entities) Fannie Mae and Freddie Mac that became the chief funding mechanism for this corrupt housing policy and its bad loans."

For crude oil the Goldman news was bearish but as the markets asses the facts of the case it is unlikely that this case will lead to many others. The White House is already trying to distance themselves from the Goldman charges because any implication that the White House had a say in the timing of these allegations may indeed be fraudulent in itself and an abuse of power. The White House cannot be seen as having a major regulatory authority being used to further its own political agenda. This is not Venezuela for heaven’s sakes. It isn’t, is it?

The volcano pressured oil with an estimated demand destruction of roughly 2 million barrels of oil a day, some due to canceled flights and also decreased economic activity. The bulls' confidence has been shaken and oil needs to continue its rebound. The removal of economic optimism could mean the focus on over supply and sluggish demand may weigh. We still feel the best way to play the market right now is to take advantage of these very wide trading ranges.


You can reach Phil at pflynnpfgbest.com and watch him every day on the Fox Business Network!


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Crude Oil Daily Technical Outlook For Tuesday

With 4 hours MACD crossed above signal line, a temporary low is in place at 80.53, just ahead of 38.2% retracement of 69.50 to 87.09 at 80.37. Intraday bias in crude oil is turned neutral and stronger recovery might be seen, to 4 hours 55 EMA (now at 83.82). Break there will bring retest of 87.09 high. On the downside, note that decisive break of 80.37 fibo support will confirm that rise from 69.50 has completed after hitting 61.8% projection of 69.50 to 83.16 from 78.56 at 87.00. In such case, deeper fall should be seen towards 61.8% retracement at 76.22 and below.

In the bigger picture, note again that medium term rise from 33.20 is viewed as a correction to the whole correction that started at 2008 at 147.27. Our preferred view is that rise from 33.2 is in form of a three wave structure (73.23, 65.05, ?) and should be near to completion. Strong resistance is expected around 90 psychological level, which coincide with 50% retracement of 147.27 to 33.2 at 90.24 and 61.8% projection of 33.2 to 73.23 from 65.05 at 89.79, and bring reversal. Hence, even though another rally cannot be ruled out, upside potential should be limited. On the downside, break of 69.50 support will break the series of higher low pattern from 33.2 and will be an important indication that the trend has reversed. In such case, we'll turn bearish on crude oil and expect the then down trend to target a new low below 33.2.....Nymex Crude Oil Continuous Contract 4 Hours Chart.


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Crude Oil Climbs From a Three Week Low on Forecast of U.S. Stockpile Drop

Oil rose from a three week low on speculation a report tomorrow will show crude stockpiles in the U.S., the world’s biggest energy consumer, declined for a second week and as rising equity prices buoyed investor sentiment. Inventories in the U.S. probably fell 600,000 barrels last week, a Bloomberg News survey showed. U.S. stocks yesterday reversed losses as Citigroup Inc. beat profit estimates and Bloomberg reported that the Securities and Exchange Commission was divided in its decision to sue Goldman Sachs Group Inc. Asian stocks rose today, led by finance companies.

“The market ran a little hard on the downside,” said David Moore, a commodity strategist at Commonwealth Bank of Australia in Sydney. “Oil has come back quite a bit” and people are reconsidering some of the impact they were expecting from the action against Goldman, he said. Crude oil for May delivery rose as much as 93 cents, or 1.1 percent, to $82.38 a barrel on the New York Mercantile Exchange. It was at $81.96 at 12:13 p.m. Singapore time. Yesterday, the contract dropped 2.2 percent to $81.45, the lowest settlement since March 26. The more actively traded June contract climbed 32 cents to $83.45. Futures have gained 3.3 percent this year.

Oil tumbled yesterday after the SEC sued Goldman, prompting investors to step away from risky assets such as commodities. Air traffic disruptions caused by a volcanic eruption under Iceland’s Eyjafjallajökull glacier cut jet fuel demand in Europe by about two thirds, according to Deutsche Bank.

Crude Stockpiles
Oil has fallen in eight of the nine sessions since April 6, when the market reached an 18 month high of $87.06. Prices rose on April 14 after the Energy Department reported an unexpected 2.2 million barrel decline in U.S. crude oil inventories. It was the first drawdown in 11 weeks. Tomorrow’s report will probably show a second decline as refiners increased operating rates for a fifth week to meet summer gasoline demand, according to the Bloomberg survey. Stockpiles of the motor fuel probably rose 140,000 barrels, based on the median estimate from 11 analysts polled.

U.S. oil stockpiles remain high and many commodities have “moved ahead of their fundamentals,” said Moore at Commonwealth Bank of Australia. Brent crude oil for June settlement climbed as much as 57 cents, or 0.7 percent, to $84.80 a barrel on the London based ICE Futures Europe exchange. It was at $84.64 at 12:17 p.m. Singapore time. Yesterday, the contract settled at $84.23 after losing 2.1 percent, the most since Feb. 25.

Reporters Gavin Evans and Yee Kai Pin can be reached at gavinevans@bloomberg.net and kyee13@bloomberg.net





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Dan Dicker: Oil Down....Blame Goldman

Dan Dicker explains how Goldman Sachs fraud charges have sent oil speculators running for cover.




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Crude Oil Market Commentary For Monday Evening

Crude oil closed down $1.60 at $81.64 a barrel today. Prices closed near mid-range today and hit a fresh three week low. No serious chart damage has been inflicted in crude, but the bulls have faded and need to show fresh power soon to keep the uptrend on the daily bar chart in place. The Goldman Sachs fraud news and the volcanic ash that is shutting down air travel in Europe are bearish factors for crude. Crude oil bulls still have the overall near term technical advantage.

Natural gas closed down 8.4 cents at $3.955 today. Prices closed near mid-range today. Bears still have the solid near term technical advantage. The next upside price objective for the bulls is closing prices above solid technical resistance at the April high of $4.334.

The U.S. dollar index closed up 11 points at 81.06 today. Prices closed near the session low today. The bulls still have the overall near term technical advantage. Bulls' next upside price objective is to close prices above solid technical resistance at the April high of 82.06.

Gold futures closed down $1.30 at $1,135.60 today. Prices closed nearer the session high today after hitting a fresh two week low early on, following Friday's steep losses that produced a bearish weekly low close. The key "outside markets" were in a bearish posture for gold today, as the U.S. dollar index was higher, while crude oil prices were lower. Uncertainty regarding the Goldman Sachs fraud charges from the SEC also added to selling pressure in gold today.


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Crude Oil Daily Technical Outlook For Monday

Crude oil dives to as low as 80.53 today and further decline is still in favor. As discussed before, rise fro 69.50 should be over after hitting 61.8% projection of 69.50 to 83.16 from 78.56 at 87.00. Decisive break of 38.2% retracement of 69.50 to 87.09 at 80.37 will confirm this case and target 61.8% retracement at 76.22 and below. On the upside, above 83.35 will flip intraday bias back to the upside and put focus back to 87.09 high instead.

In the bigger picture, note again that medium term rise from 33.20 is viewed as a correction to the whole correction that started at 2008 at 147.27. Our preferred view is that rise from 33.2 is in form of a three wave structure (73.23, 65.05, ?) and should be near to completion. Strong resistance is expected around 90 psychological level, which coincide with 50% retracement of 147.27 to 33.2 at 90.24 and 61.8% projection of 33.2 to 73.23 from 65.05 at 89.79, and bring reversal. Hence, even though another rally cannot be ruled out, upside potential should be limited. On the downside, break of 69.50 support will break the series of higher low pattern from 33.2 and will be an important indication that the trend has reversed. In such case, we'll turn bearish on crude oil and expect the then down trend to target a new low below 33.2.....Nymex Crude Oil Continuous Contract 4 Hours Chart.

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ExxonMobil CEO: Recovery Requires Stable Policies

The best way for government to kick start the economy is to provide a level playing field for competition and create stable policies that will enable long term investments, Rex Tillerson, chairman and chief executive officer of Exxon Mobil Corporation, said today. "Leaders in government and in business agree that we face an urgent need to revitalize our economy and spur job creation," Tillerson said in a speech to the Houston World Affairs Council, where he accepted the Jesse H. and Mary Gibbs Jones International Citizen of the Year Award.

"To achieve these goals, we must unleash the extraordinary power of private citizens to seize new opportunities in free markets. Industry can achieve this by taking risks, investing in the future, hiring new workers, expanding operations and making our economy more competitive. But we can only achieve this when government creates a level playing field for competition and upholds a stable policy framework conducive to long term investments."

Tillerson said America's businesses, both small and large, need to be able to plan for the future in order to make investments that will create badly needed jobs for the nearly one in 10 Americans who are unemployed and millions more who are underemployed or no longer seeking work. "Every business leader faces challenges in assessing the future, but in tough economic times government can help by keeping a steady hand on the rudder. If the private sector knows that government will stay the course and resist the temptation to over-regulate, it can invest with confidence." According to recent studies, the oil and natural gas industry contributes more than $1 trillion a year to the U.S. economy and directly and indirectly supports more than 9 million jobs.

"These economic contributions are even more important in light of the global economic downturn and the slow job creation of the nascent recovery," said Tillerson. "I believe our industry can, and must, be part of our national efforts to achieve more robust economic growth." Tillerson said much focus has been placed on the role small businesses play in job creation, but studies show that large corporations are also critical engines of job creation and employment. "As big businesses flourish, small businesses are created as the direct suppliers, contractors and providers of other services essential to the success of the larger businesses. With the right public policies, the energy industry and companies like ExxonMobil can lead the way back with our disciplined investments in new projects, new technologies, and new jobs."

Tillerson said that when government creates an environment where businesses can be creative, take risks, and grow, the private sector will repay that trust by creating millions of new jobs but also through unequaled acts of private charity and corporate citizenship. ExxonMobil's 80,000 employees are proud of their contributions in providing for social development, environmental protection and the company's most visible contribution, supporting economic growth and development by providing reliable energy, well paying jobs, tax revenues, technological innovation, and shareholder value. ExxonMobil's corporate citizenship efforts help communities achieve long term economic and social development, through programs focused on battling malaria, increasing economic opportunities for women and supporting improvements in science, technology, engineering and math education.

"We have a long record of going beyond our primary responsibility of delivering the energy that benefits our consumers, shareholders and business partners," said Tillerson. "As a company and as individuals, the men and women of ExxonMobil are dedicated to being good corporate citizens wherever we operate. We believe this ideal is so integral to our long term success that we have built it into our business model and our corporate governance. In other words, we believe our commitment to citizenship is fundamental to our year to year success as a company."

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Oil N Gold: Commodities Extend Weakness as Investors Avoid Risks

Crude Oil prices extend weakness for a third consecutive day as global risk aversion jumps amid Goldman's case. WTI crude oil price slides to 80.8 in European session, after plummeting -2.69% to 83.24 last Friday. Declines in heating oil and gasoline also accelerate with losses of -3% and -2% respectively.

After disclosing production of 29.26M bpd in March (+5.6% y/y), OPEC will probably increase shipment, by +0.9%, in the 4 weeks ending on May 1. This further increases oil supply which is already in a surplus in the market. Member countries are boosting production regardless insufficient demand.

In an interview over the weekend, Qatar's oil minister Abdullah bin Hamad al-Attiyah said there's no need for a special meeting before its October meeting but he mentioned that recent rally in oil price was is 'not related at all to there being a shortage...We see that inventories are at their highest'.

Natural gas has fallen in consolidative phase since April. However, resumption of inventory builds indicates risk of price is to the downside. Gas supply will likely remain ample in coming years as large producers are not going to cut output despite slump in prices.

Although Algeria's energy minister Chakib Khelil plans to seek commitments from 11 gas exporting nations to reduce output, both Russia and Qatar, respectively the biggest and the third biggest holders of the world's reserves, will probably refuse to collaborate.

Gold price slides due to broad based decline in commodities and weakness in the Euro. Currently trading at 1130, the benchmark contract fell to as low as 1124 earlier today. Despite the fall, gold's performance is relatively resilient when compared with oil prices. Some investors buy gold as they lose confidence on currencies on Greece's issue.

Talks on Greece involving the European Commission, the IMF and the European Central Bank have been delayed until April 21 as a volcanic ash cloud disrupted air travel. The market expects the EU and the IMF will impose tough conditions for the rescue package for Greece. The spread between Greek and German 10 year government debt widened +32 bps to 462 bps, the highest level since October 1998.

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