Futures Market Blog

01.14.09

————————-Last————————Last Week 1.07
Mar Crude—————-44.37—————————-47.39
Mar Heat—————–146.55—————————155.21
Mar XRB (Blended Gas)—–120.52—————————112.04

Crude oil and its products came under renewed selling pressure on Tuesday as the Department of Energy reported an unexpected increase in distillate supplies even as the severely cold weather in the Midwest US made its way towards the more densely populated East Coast. Gasoline inventories in the report rose by 2.07 million barrels to 213.5 million barrels for the latest reporting week. The trade was looking for an increase of only 1.8 million barrels. The more surprising aspect of the report came with the release of distillate stocks which surged by 6.35 million barrels to 144 million barrels. The trade had been looking for a crease of only 1 million barrels. Crude stocks were also higher but by only 1.14 million barrels while the trade had been looking for an increase almost twice that size. Prices also fell in sympathy with weaker US equity prices. Retail sales were worse than expected due to falling employment. US consumers cut back on spending in almost all categories due to the economic contraction, job losses and tight credit. The Department of Energy went on to state that world oil demand should be 800K barrels a day less than last year.  Earlier in the week, crude tried to rally after OPEC leaders indicated that they might be forced to seek even steeper production cuts to support prices. Saudi Arabia and Venezuela both were calling for production reductions. The Saudis are currently producing 8 million barrels a day, in line with previously stipulated quotas. Compliance by other producing members has always been a problem, however. The need for hard currency is always a constant and when prices decline there’s always a temptation to try and grab greater market share to compensate for lost revenues. To many OPEC members, the “correct” price for oil is $70 a barrel. At the same time, The Department of Energy has projected $43 a barrel as being the median price for oil this year due to economic stagnation. Oil supplies at Cushing, Oklahoma are 81% higher than a year ago.

——————————-Support———-Resistance
Mar Crude———————–41.00————48.00
Mar Heat————————140.00————159.00
Mar XRB————————-108.00————125.00

METALS
——————————–Last———————–Last Week (0/7)
Feb Gold————————808.80 ———————–841.70
Mar Silver———————–10.475————————11.105
Apr Platinum———————936.50———————–990.10

Gold continued to lose value through the second trading week of the year as oil fell in price, the dollar traded higher against most major foreign currencies and the US economy continued top contract. Sales at US retailers for the month of December fell by twice as much as initially forecast. Gold was not being seen as a safe haven over the past week. Instead, the trade was to deleverage, buy dollars and pay back Yen loans. Silver was lower by 24% in the past year while gold gained 5.6%. The flight to quality market was still the US treasury market, not precious metals. The dollar is higher by almost 4% for the month against a basket of currencies. Also, weaker prices for oil helped to distract metals buyers. Eventually the massive infusions of liquidity into the US banking system will work its way through the economy with inflationary consequence but that moment is still distant on the horizon. The dollar has maintained its strength against the EC as it’s thought that the ECB will lower short term rates to 2.0% from 2.5% later this week. A depression in car sales has hurt the price for Platinum.

—————————–Support———————Resistance
Feb Gold———————–800.00———————-840.00
Mar Silver———————–10.10———————–11.15
Apr Plat————————909.00———————-980.00

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SOFTS
——————————Last———————Last Week
Mar Coffee———————115.05——————–114.20
Mar Sugar———————-11.60———————11.98

Coffee is expected to rally this year as the Brazilian harvest was much less than expected and demand appears to be almost recession proof. Some trade forecasters are pointing at $1.45 a pound as being a target price. The global credit crunch had the effect of Brazilian coffee growers buying less fertilizer resulting in a smaller crop. Production may be off by as much as 20% as coffee trees enter the second year of the two year growth cycle which sees a drop off in production normally. The harvest next year could be off by as much as 10 million bags. Domestic usage is expected to be up 21% while exports are expected to decline by 8%. All of this math points to higher prices.

Sugar had traded as high as 12.50 recently but the fall in the price of oil and renewed worries of economic contraction and decreased ethanol usage pushed prices lower.

——————————Support——————Resistance
Mar Coffee———————-112.50——————–118.50
Mar Sugar———————–11.25———————11.75

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——————————–Last———————Last Week
Mar Soybeans———————9.715———————-9.90
Mar Corn————————-3.664———————4.164

Soybeans traded lower on a stronger dollar. Also, the most recently released USDA report showed better than expected ending stocks for grains almost across the board. Additionally, a world in economic contraction has reduced expectations for export demand.  Soybean imports by China rose by 22% last year. This pace is not expected to be maintained this coming year. Money flow for soybeans remains positive as it does for corn.

Corn rebounded off the recently seen lows due to speculation that hot, very dry weather will hurt Argentinean production levels. Lack of rain fall is hurting production in this key growing country. There’s also the expectation that China will remain a good buyer of corn in the coming months.

——————————–Support——————-Resistance
Mar Soybeans———————–9.42———————10.10
Mar Corn—————————3.50———————3.85

Chuck Kespert

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HYPOTHETICAL PERFORMANCE RESULTS HAVE MANY INHERENT LIMITATIONS, SOME OF WHICH ARE DESCRIBED BELOW. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN. IN FACT, THERE ARE FREQUENTLY SHARP DIFFERENCES BETWEEN HYPOTHETICAL PERFORMANCE RESULTS AND THE ACTUAL RESULTS SUBSEQUENTLY ACHIEVED BY ANY PARTICULAR TRADING PROGRAM.

ONE OF THE LIMITATIONS OF HYPOTHETICAL PERFORMANCE RESULTS IS THAT THEY ARE GENERALLY PREPARED WITH THE BENEFIT OF HINDSIGHT. IN ADDITION, HYPOTHETICAL TRADING DOES NOT INVOLVE FINANCIAL RISK, AND NO HYPOTHETICAL TRADING RECORD CAN COMPLETELY ACCOUNT FOR THE IMPACT OF FINANCIAL RISK IN ACTUAL TRADING. FOR EXAMPLE, THE ABILITY TO WITHSTAND LOSSES OR TO ADHERE TO A PARTICULAR TRADING PROGRAM IN SPITE OF TRADING LOSSES ARE MATERIAL POINTS WHICH CAN ALSO ADVERSELY AFFECT ACTUAL TRADING RESULTS. THERE ARE NUMEROUS OTHER FACTORS RELATED TO THE MARKETS IN GENERAL OR TO THE IMPLEMENTATION OF ANY SPECIFIC TRADING PROGRAM WHICH CANNOT BE FULLY ACCOUNTED FOR IN THE PREPARATION OF HYPOTHETICAL PERFORMANCE RESULTS AND ALL OF WHICH CAN ADVERSELY AFFECT ACTUAL TRADING RESULTS.