The Crude Oil Trader

Thursday, October 14, 2010

Crude Oil Falls as Report Shows Petroleum Demand Decreases to 10 Month Low

Crude oil fell after a government report showed U.S. petroleum demand dropped to the lowest level in more than 10 months as the economy struggled to recover. Crude declined for a third day this week after the Energy Department reported total petroleum demand decreased 0.7 percent to 18.3 million barrels a day in the week ended Oct. 8, the lowest level since the seven days ended Nov. 27, 2009. A Labor Department report today showed U.S. jobless claims unexpectedly rose to 462,000 in the week to Oct. 9.

“The demand numbers were very weak,” said Tim Evans, an energy analyst at Citi Futures Perspective in New York. “We don’t really have a bull market unless we have stronger consumer demand.” Oil for November delivery fell 34 cents, or 0.4 percent, to $82.67 a barrel at the 2:30 p.m. close of floor trading on the New York Mercantile Exchange. Earlier today, futures rose to a one week high of $84.12. Prices have climbed 4.2 percent this year.

Brent crude for November settlement fell 35 cents, or 0.4 percent, to $84.29 a barrel on the ICE Futures Europe exchange in London. The Energy Department reported demand for gasoline decreased 2 percent to 8.81 million barrels a day, the lowest level since the week ended Feb. 12. Oil also declined as the report showed crude supplies fell 416,000 barrels last week, less than the American Petroleum Institute estimated yesterday......Read the entire article.

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Gold/Dollar Play is Getting Extreme

A lot of what is driving the recent stock market and commodity rally can be attributed to the plummeting Dollar. To some degree the rally in Gold (GLD) is almost getting parabolic in nature. While we've been longer-term bullish on Gold for some time, such a strong uptrend becomes more and more likely to break down sharply. Feel free to ride up such a strong uptrend, but take profits quickly and be prepared to jump on the bearish side should it break down -- because it will correct sharply and quickly when it does.

Take a look below at the recent very strong inverse correlation between GLD (yellow) and the Dollar ETF (UUP, green). When/if this does break down a bit with the Dollar rallying and Gold selling off, option traders can consider a Long UUP, Short GLD paired trade strategy. But don't jump in front of this runaway train yet.

And wherefore the Dollar, which more and more seems to be the main driver of the recent big rally in many commodities and strenght in stocks. Using the US Dollar Index (DXY), which goes back 30 years+, you can see below that we've reached the lowest levels ever since the economic crisis occurred. As I've mentioned previously, a weak currency is NOT good for a country and its economy over the long-term (although some make the argument that it does boost the power of our exports). Buying power and wealth of Americans are badly hurt when foreign good become more relatively expensive and inflation raises the prices of basic commodities. And think about it from a traveler's perspective ... if you travel to a country with a very poor exchange rate, making it basically dirt cheap to go there ... what do you equate that with? A third world or emerging economy, basically. Not good for the once strong USA, in my view.

So where can the Dollar bottom out? Well, looking at the DXY Weekly Chart below, you can see we're in a pretty steep downtrend, so don't fade this just yet. Notice that the recent downtrend began when we failed at the same top that was resistance in late 2008 and early 2009. We are fast approaching the area where the DXY bottomed in late 2009, and beyond that lies the significant lows of the 2008 panic.

Bottom line: The Dollar and its various ETFs and Indexes are in a free fall, so don't jump in front of a falling knife. This is contributing to strong rallies in Gold and other commodities and also helping push stocks higher to some degree. These types of parabolic trends in Dollar and Gold will tend to steepen and steepen until it breaks down sharply, right at the top (or bottom) when the biggest greed of an "easy trade" comes in. So ride these trends while they last, but limit exposure and take profits quickly, when these end they usually reverse hard and rapidly, and jump on the other side for profits in both directions from option trading.

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Phil Flynn: Do You Remember When OPEC Used To Matter?

It seemed like the greedy cartel held the fate of the global economy right square in their hand. Press people would stalk different oil ministers desperately trying to get a comment or a clue to whether or not they would dispense their favor on the world and pump more oil or cut production and thumb their nose at the world.

These oil ministers loved the attention. For a couple of weeks a year they were like rock stars with paparazzi following them all around. Not bad for an evil cabal of market conspirators. Yet now, even though some press is attending the OPEC meeting, the guys are not getting the attention that they are used to. It is kind of like a celebrity on the decline that is quickly becoming yesterday’s news. There is no OPEC drama.

OPEC is living the economic dream. They are one of the biggest beneficiaries of the global economic crisis. OPEC is going to leave their production quotas unchanged and will continue to cheat on production as the opportunities arise. Why change things now when times are so good? Heck why constrain production when you have the global central banks around the globe doing your heavy lifting for you?

OPEC should get on their knees everyday and thank their lucky stars for a guy like Federal Reserve Chairman Ben Bernanke who is turning out to be OPEC’s best friend. Why Ben Bernanke? I will tell you why......Read the entire article.

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Crude oil was higher overnight and appears poised to renew the rally off August's low. At the same time, stochastics and the RSI are overbought but are turning neutral to bullish signaling that additional short term gains are possible.

If December renews the rally off last week's low, the 75% retracement level of May's decline crossing at 88.07 is the next upside target. Closes below the 20 day moving average crossing at 80.39 would confirm that a short term top has been posted.

First resistance is last Wednesday's high crossing at 85.08
Second resistance is the 75% retracement level of May's decline crossing at 88.07

First support is the 10 day moving average crossing at 83.13
Second support is the 20 day moving average crossing at 80.39

Why Diversification Doesn't Work

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Wednesday, October 13, 2010

Mid-Week Market Report on Equities and Metals

It's been an interesting week with stocks, commodities and currencies having a knee jerk reaction to the FOMC minutes released Tuesday afternoon. In short the Fed clearly said there must be more quantitative easing before things will get better. It was this news which triggered a rally in both stocks and commodities. Quantitative easing is a fast way to devalue the dollar and the Fed is doing a great job at that. As long as the dollar continues to decline the stock market will keep rising.

This week kicked off earning season with INTC and JPM beating analyst estimates. We usually see the market trade up the first week of earnings and then start to sell off by the end of earnings season. Both INTC and JPM sold off on strong volume today despite the good earnings and today’s broad market rally. This just goes to show the market has not forgot about buy on rumor sell on news… The big/smart money sold into the morning gaps exiting at a premium price. Is this foreshadowing for what is to come?

Take a look at the chart below which shows the falling dollar and how its helping to boost stocks and commodities.

While earnings season is trying to steal the spot light in the market, the fact is everything for the past 2 months has been about the US Dollar. If you put a chart of the dollar and the SP500 together they trade almost tick for tick in reverse directions. The amount of money getting pumped into the market cannot last and it will lead to a huge volume reversal day in due time. Until this happens the market will trade higher.

Taking a look at the SPY daily chart the 5, 10, and 14 simple moving averages tend to act as buy zones. The market was choppy from April until about 2 months ago. Now we are seeing the market smooth out and traders are switching to more of a trend trading strategy and not so much looking for extreme sentiment levels which typically signal short term tops and bottoms. Focusing on buying at these moving averages has been providing good support thus far. Stops should be set on a closing basis, meaning if the market is to close below the moving average then exiting the position is a safe play. It’s always best to layer your stops (scale out) in trending market. So stops below the 5, 10, 14 and even the 20ma will provide you with enough wiggle room to riding a trend.

Mid-Week Trading Conclusion:
In short, we are in a strong uptrend and until we get a major reversal day, buying the market is the way to go. The market as we all know is way over bought so if you decide to take a position on your own, be sure to keep it small. I would also like to note that financial stocks were the worst performing on the day so that could be telling us there could be some profit taking in the next day or two.

Chris Vermeulen
The Gold And Oil Guy.com

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Oil climbed for a second day in New York after an industry-funded report showed U.S. crude supplies fell and the dollar declined against the euro, increasing the appeal of commodities as an alternative investment. Futures rose as the U.S. currency slipped on speculation the Federal Reserve will ease monetary policy further and after the American Petroleum Institute reported that inventories decreased the most since July. Prices surged 1.6 percent yesterday, the most in six days, after the International Energy Agency raised its global demand forecast and as China imported a record volume of the commodity in September.

“The overall feeling is optimistic,” said Jonathan Barratt, managing director of Commodity Broking Services Pty in Sydney. “We still see stimulus being talked about from the Fed, and as a result of that we’re seeing all the commodities climb. It all looks solid for oil to move higher.” The November contract jumped as much as 79 cents, or 1 percent, to $83.80 a barrel in electronic trading on the New York Mercantile Exchange and was at $83.73 at 1:00 p.m. Sydney time. Yesterday, it added $1.34 to $83.01, the highest level since Oct. 6. Prices are up 5.5 percent this year.

Crude stockpiles dropped 4.01 million barrels last week to 362.1 million, the American Petroleum Institute said. A U.S. Energy Department report today may show stockpiles climbed 1.45 million barrels last week, according to the median of 18 analyst estimates in a Bloomberg survey......Read the entire article.

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Sharon Epperson: Where is Crude Oil and Gold Headed on Thursday

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

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Commodity Corner: Rallies All Around

November crude oil finished higher for the first time this week Wednesday, gaining 1.6% on news that China's appetite for crude oil increased in September. The price of a barrel of crude oil rose $1.34 to settle at $83.01 after China's General Administration of Customs announced the country's crude oil imports increased by 11% last month compared to its purchases in August.

Also providing momentum for oil was the International Energy Agency (IEA), which increased its global oil demand forecast by 300,000 barrels per day through 2011. Now, the IEA forecasts global oil demand to reach 86.9 million b/d for 2010 and 88.2 million b/d for 2011. Oil traded within a range from $81.68 to $83.45 Wednesday.

Natural gas, which has endured a slump recently on mild weather forecasts, rose 1.9% Wednesday as a result of profit taking by traders as well as the sentiment that prices have bottomed out. November natural gas settled seven cents higher at $3.70 per thousand cubic feet after trading from $3.63 to $3.78. The price of a gallon of gasoline increased by 2.4% Wednesday. The front month price settled a nickel higher to end the day at $2.17. It fluctuated between $2.12 and $2.17.

Courtesy of Rigzone.Com

Why Diversification Doesn't Work

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Stock Market and Commodities Commentary For Wednesday Evening Oct. 13th

The U.S. stock indexes closed higher today and hit fresh five month highs. The stock index bulls have the overall near term technical advantage as price uptrends are in place on the daily bar charts. Stock index bulls have been very pleased with price action so far this autumn a time which is normally not favorable to market bulls. My bias is that prices will trade mostly sideways, but with a slight upside bias, into the end of the year.

Crude oil closed up $1.36 at $83.03 a barrel today. Prices closed nearer the session high today in the wake of a bullish IEA report that showed increasing worldwide demand for oil. A weaker U.S. dollar index also supported crude today. Prices are still in a six week old uptrend on the daily bar chart. The next near term upside price objective for the bulls is producing a close above solid technical resistance at last week's high of $84.43 a barrel.

Natural gas closed up 5.5 cents at $3.684 today. Prices closed nearer the session low today. More tepid short covering in a bear market was featured today. The bears still have the solid overall near term technical advantage. The next upside price objective for the bulls is closing prices above solid technical resistance at $4.00.

Gold futures closed up $25.30 at $1,372.00 today. Prices today closed near the session high and scored another fresh all time record high. A weaker U.S. dollar index and a two year high in the Continuous Commodity Index invited fresh speculative interest into the gold market on the long side today. The gold bulls have the solid overall near term technical advantage. Prices are in a 2 1/2 month old uptrend on the daily bar chart.

The U.S. dollar index closed down 28 points at 77.30 today. Prices closed near the session low again today and are hovering near a nine month low. Bears still have the solid overall near term technical advantage. There are still no early clues to suggest a market bottom is close at hand.

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