It seems like we have seen this before. It was just about a year ago that large numbers of traders and observers were questioning the market activity, with the US dollar seen as the over-riding market factor. Despite signs that demand might have trouble rebounding soon, and little leadership offered by either the dollar or equities, traders seized on relatively minor factors to push quotes higher yesterday. It does now seem that the buy-stops accumulating over $73.24 are acting as a magnet for prices right now. The most important of these factors was yet another attack by MEND on Shell’s Nigerian output. This group has to be long crude contracts and short Shell shares. Despite an outreached olive branch by the Nigerian government, which offered a ceasefire, MEND continued to target international oil facilities instead of government troops. [More]

Prices were lower on Friday as the pendulum swung back the other way. On this swing, traders were concerned that perhaps the economy is not getting that much stronger, in part because of lower equities prices. The Dow Jones Industrial Average (DJIA) finished the week with a loss of more than 100 points. And, whenever equities prices are lower, traders tend to feel that the economy may not be rebounding as well as is considered the case when equities are higher – in which case the assumption seems to be that the recession is ending and oil demand will be robust again, at some vague and distant time. When equities and the euro are lower (dollar is higher), oil demand is seen as being weaker. When the stock market and euro are higher, it is considered just a matter of time before oil demand will be brisk, again. [More]

There were signs that funds were back in buying yesterday, which dovetails well with comments made by some large investment banks recently. We know it has not been traditional commercial oil traders or normal, long-time speculators that follow charts. It is not weather-related, seasonal or psychological. The buying we are seeing here is the same buying we saw in April and May, when the back-story was that the economy was improving and that it would ultimately lead to higher oil demand. Yesterday’s buyers view oil as an “asset class,” not as a commodity with supply & demand factors. Equities were higher yesterday, and that brought back the buying-because-the-economy-is-getting-stronger (and that will give us better energy demand) argument. A lower US dollar rounded out the asset class equation. [More]

Oill prices rallied yesterday, partly in reaction to a sharp selloff in the US dollar (see page 7). The dollar seemed to be trying to construct a major bottom prior to yesterday’s steep decline, and the failure to confirm a recently-formed head & shoulders bottom has to be seen as a major opportunity lost. The weakness seen yesterday in the US dollar came in response to strong consumer confidence figures in Germany and in reaction to the start of a two-day Federal Reserve Open Market Committee meeting. The connection to the dollar runs through interest rates, and most Fed-watchers were talking yesterday about the unlikelihood of any Fed-sanctioned increase in interest rates, any time, soon, and that pulls one source of support out from under the dollar. [More]

The oil complex dropped again yesterday, and that suggests that prices are now in a genuine, full-fledged correction. There are two worries from a bearish perspective. We usually get a final short-covering rally in bear moves, and June declines have a nasty tendency to end quickly (after a short period of time) and suddenly (without much warning). There is also a mitigating factor. Usually, June declines start two or three weeks earlier than this one did. And that is one reason that they so often end on or around July 4th. That leaves us wondering whether prices will follow the June model by ending on Independence Day or follow last year’s model, which would give us a full-bodied test of the lows reached last December. That gives us a couple factors to watch for, starting with an Independence Day low if prices fall steeply here. [More]

Gasoline prices dropped 5.17% on Friday, and prices finished the week 18.80 cents below the intraday high seen on Tuesday. For the week, gasoline prices surrendered 11.87 cents, with heating oil quotes off 5.08 cents a gallon and crude oil down $2.49/barrel. The most perplexing aspect of Friday’s steep decline in gasoline was weakness in the US dollar, which suggests that traders were either looking at technical overbought pressures, fundamental sloppiness in the form of ample inventories and weak demand, or equities, which were lower Friday. [More]

The US dollar traded close to unchanged yesterday, and equities were lightly higher, providing a small measure of support for oil prices yesterday. It was a very mixed kind of “support,” though. Crude oil prices posted very light, fractional gains on the day, while heating oil and gasoline futures ended with light losses. The main focus yesterday was employment. Data released yesterday showed people claiming state unemployment benefits in June down by the largest number since November, 2001, Dow Jones noted in its market roundup. It also noted Mid-Atlantic manufacturing activity in June down by the lowest figure since September, and it reported the Conference Board’s index of leading indicators up 1.2% in May. [More]

Options on July crude oil contracts expired yesterday, and the underlying prices were all over the lot in the process. Prices reached a new, recent low, but they then rallied into the close, presumably on short-covering by traders holding short July contracts. Heating oil prices were higher and gasoline prices were lower yesterday. The US dollar was lower yesterday, and that helped oil prices rally. We noted that gasoline prices were lower, largely on the increase in gasoline inventories, but traders seem to have ignored the most bullish feature in this week’s statistics. Four-week gasoline demand was up 1.14%, confirming last week’s foray into positive territory and showing the first genuine sign that the economy is really improving. Even with millions not going to work, Americans are using more gas again. [More]

Oil prices started yesterday’s session with a solid rally, but it was slowly eaten away until prices finished in negative territory by the final bell. Refined products managed to hold onto gains, but the final prices were well removed from the higher prices seen earlier in the day. The US dollar was under selling pressure early yesterday, but it rallied through the day. The DJIA was stronger earlier, but it ended the day with losses of more than 100 points. Market observers and participants seem to be coming to the conclusion that even though the worst may be over, it will take a long time before the economy gets materially better. The line drawn between higher equities prices, an improving economy and higher oil demand suddenly seems untenable. [More]

The US dollar completed the construction of a small head and shoulders bottom yesterday, settling just above the neckline. That gives the dollar an upside objective to the 74.75 euro cent zone. We apologize; many of readers thought this was a report about energy markets. It still is. Unfortunately, the energy markets have been hijacked, again, by currency transactions. The future course of the US dollar currently trumps long-standing fundamental factors like inventories, refinery output, Opec and refined products demand. The good news is that the dollar seems headed higher on the charts, and that could give the fundamentals in the oil complex a moment to recover control of price movements. [More]