The Hightower Report

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CRUDE OIL MARKET FUNDAMENTALS: Crude oil has seen a choppy two sided trade overnight but the market seems to have a positive bias since oil has so far held up fairly well despite the bearish API reading. API reported a jump in oil stocks that were twice as high as expectations but the trade seems to be instead focusing on a much sharper than expected decline in distillate stocks. A weaker Dollar and firmer Euro have also provided some price support to crude oil in the early going on rising investor risk appetite. Also, news that Greece has adopted more austerity measures seems to be providing a bit of macro economic optimism to the oil markets. But so far the buying conviction in crude oil up at these high price levels hasn’t been that strong leaving the market still looking a bit fragile. While macro economic sentiment seems to have improved, the demand outlook for oil remains sketchy typified by news that Japanese crude oil stocks fell to a three month low on week refinery demand and inventory adjustments ahead of Japan’s fiscal year end in March. Oil markets have been closely following the ebb and flow in the equity market and overnight gains in oil have likely been limited by a lack of clear direction in equities which have only managed to edge higher at times despite the positive news on Greece. But crude oil may be in a holding pattern ahead of a variety of market impacting reports on inventories, US service sector growth and private employment. Most traders are expecting the EIA report to show a 1.3 million barrel gain in oil stocks and a rise in gasoline stocks, but a nearly 1 million barrel drop in distillate supplies. But in the end, the economic news and outside market influences may have more of an impact on oil market direction, especially if the inventory report comes in close to expectations. While April crude oil has consistently failed up at these price levels, the market has also held around the 40 day moving average on price breaks which comes in at $78.04 today. Yesterday’s probe above the February high would also seem to give April crude oil more of an upward tilt. We get the sense that crude oil will make another upside run attempt this session and seeing a close over yesterday’s high will put April crude oil on course to test the January high. But if another failed rally attempt is seen, we suspect the $78.00 in April crude oil is likely to hold.

GASOLINE: Gasoline has also seen a choppy two sided trade overnight and to the bull camp’s favor it is impressive the market has held up so far despite the API reporting a higher than expected rise in fuel stocks. Gasoline has led rally attempts in the complex on optimism that improving economic conditions will raise fuel demand this spring which could tighten supplies if refiners keep operating rates below average. There is a strong tendency for gasoline prices to rise through April and this view has attracted buyers on price breaks in gasoline. But the upside so far in gasoline has been capped by high fuel supplies and demand readings that remain weak despite signs that economic conditions are starting to improve. In fact, the latest retail pump survey showed a 1.1% rise in gasoline demand last week compared to a year ago, but the four week average demand reading was still slightly weaker than a year ago. Traders are expecting to see more than a 500,000 barrel rise in gasoline stocks in today’s EIA report. But like crude oil, the gasoline market seems to have more of an upward tilt and if today’s news flow is generally positive, we suspect it could be enough to support a rally in April gasoline to test the February high. But if the market falls back on bearish news, we suspect a break in April gasoline will be limited to support at $2.1358, the market’s 40 day moving average.

HEATING OIL: Heating oil has seen a higher trade in the early overnight action with price support coming from yesterday’s bullish API report which showed a much larger than expected decline in distillate stocks, which fell despite a rise in the refinery operating rate and higher production. Reports that Chile may need to import diesel fuel, some US refinery snags and cold weather this week may be other factors providing some price support heating oil. But despite the inventory drop distillate supplies remain at record high levels for this time of year and that may still be a stumbling block for the bull camp to overcome. So far the upside in April heating oil has been capped at the $2.10 price level as the market has lacked a strong enough demand outlook to support higher prices. Therefore, we suspect the heating oil market will need a combination of bullish inventory and economic news along with supportive outside market influences, particularly from equities in order to make a clean break above the February high. Otherwise, look for April heating oil to fall back towards support near $2.0064, the market’s 200 day moving average.

TODAY’S ENERGY MARKET GUIDANCE: Oil markets seem to have an upward price bias giving the bull camp an early edge. But oil markets also look fragile at these higher levels and will likely need a bullish news flow today to inspire an upside breakout of ranges.

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OUTSIDE MARKET DEVELOPMENTS: With the outlook for the Greece situation seemingly improved by the latest austerity program and equity market action generally upbeat over the last 24 hours, that seems to have left physical commodities like the metals markets in favor. Apparently many markets have taken hawkish US Fed dialogue, as a sign that the US economy continues to progress toward recovery, even if scheduled data has failed to register much in the way of recovery progress. Therefore it is possible that many markets might simply discount a series of private jobs reports today. The markets will also see a US ISM Non Manufacturing release later this morning and a Fed Beige Book early this afternoon. However, with the US monthly non farm payroll reading due out on Friday morning and one of the private jobs reports this morning showing an improvement it is possible that the bull camp will lessen their concern toward the Friday numbers. As in the prior trading session, the action in the US equity markets look to be a major influence for gold and silver prices.

GOLD MARKET FUNDAMENTALS: In looking at the magnitude of the gains in gold in the prior trading session, one almost got the impression that “investment interest” was returning. Clearly a weaker Dollar and rising equities gave some credence to the prospect of recovery ahead, but in some cases it almost appeared as if hawkish US Fed dialogue was being interpreted as a development that signals a recovery in the US economy. In the end, seeing a rally in gold prices in the face of hawkish Fed dialogue and also seeing strength in the face of mostly slack US scheduled data has to embolden the bull camp and discourage the bear camp. It does appear as if favorable Indian demand patterns have provided some support to gold prices, but many traders think that gold strength is generally coming from outside or bigger picture elements. At least in the early action today, it would appear that calm in the Greek situation will give the bull’s some added confidence, while the bear camp will attempt to play up the prospect of weak jobs news from the US economy. For most of the last two months, the gold market has acted like a physical commodity market and therefore the tight correlation with equities is likely to continue to impact gold prices.

SILVER MARKET FUNDAMENTALS: The Silver market has managed another new high for the move today and in the process it has managed to rise within close proximity to the 100 day moving average of $17.33. Clearly silver appears to be up beat toward the prospect of global growth, in the wake of an improvement in the Greek situation. It almost seems as if silver and other physical commodity markets have taken overtly hawkish dialogue from the US Fed, as a sign that the US economy “must” be improving. In other words, if the Fed is feeling the need to tighten, they must be seeing signs of progression in the US economy. In the short term, weakness in the Dollar and a lack of concern toward the economy looks to favor the silver bulls, while the bear camp will look to potential weakness in upcoming US jobs figures and further debt problems to stem the current rise in silver prices. The bear camp might also be hopeful that US monthly payroll readings on Friday morning will serve their case better than the economic psychology seen in the first three days of this week. In the end, classic supply and demand news in silver is minimal and seemingly unable to unseat the focus on outside market forces.

PLATINUM: Another new high for the move leaves the bull camp with clear control over platinum prices. A weaker Dollar and a pattern of positive spin on the economic outlook looks to add to the upward momentum in platinum. With the added support from a possible platinum strike in Australia, the platinum market is getting both internal and external fundamental support. Next upside targeting in April platinum is seen at $1,584 and again up at $1,594. While we have a gut concern that economic views are overly optimistic, it probably won’t pay to stand in the way of this market in the coming trading session.

Below is a sample of our Daily Commentary. To get this comment, and our daily coverage of 15 additional markets and trade ideas, visit futures-research.com for your free 2 week trial!

May copper is positively positioned in the early going today. With a weaker Dollar and generally up bear macro economic views, the bull camp has more ammunition than the bear camp. Limiting the upside in copper are beliefs that Chilean production won’t be seriously derailed because of the quake. While we can’t deny some upside action today, we are uncomfortable chasing copper prices higher off the current macro economic view. However, May copper will probably see some noted support off the even number $3.40 level, but we wouldn’t be surprised if the private jobs readings serves to temper the bullish attitude a bit in physical commodity markets later this week. On the other hand, some traders are taking notice of a small number of daily LME copper stock declines and suggesting that is the beginning of a pattern and that is another example of the market spinning marginal developments into a positive event.