Morning Petrospective – October 6, 2011

he oil complex was higher on Wednesday as traders were following through on the buying seen late on Tuesday. A number of assets had found critical support on Tuesday, typically just below major support levels that had been established in late September or in the first 10 days of August. These levels were broken below in equities, oil and in a number of other assets Tuesday afternoon, but prices rallied back above those support levels quite late that day. In equities, the rally back over the key support came after 3:30 PM on Tuesday. In oil it had come about that same time in afterhours trading. Wednesday’s advance started with follow-through buying based on that.

Crude oil prices had even settled at $75.67, four points below the critical low point of $75.71 reached on August 9^th. But, by early evening, prices had already rallied above $77.11, which had been the significant low point reached on September 26^th. So, by Wednesday afternoon, the follow-through buying had pushed quotes up to challenge the $80.00 level. In the event, though, crude oil gained $4.01 on Wednesday, but it could not breach $80.00.

Refined products had also had huge days on the charts on Tuesday. Heating oil prices fell beneath their August 9^th low of 270.20 and gasoline fell under its August 9^th low of 258.54. Gasoline is still below its low point, but heating oil was back over 270.20 by Tuesday afternoon’s close. And it stayed above it and built on that on Wednesday. In fact, the oil complex was almost steadily higher from 9:30 until its open outcry close on Wednesday.

In addition to the follow-through from Tuesday, equities were higher again on Wednesday, with the DJIA rising 131.24 to 10,939.95. That came a day after stocks (equities) dropped to their lowest level for the year, breaking the previous low and giving us a signal that should have given us a flag formation that would take prices on another leg lower. Instead, prices rallied, leaving Tuesday’s earlier breakdown as a “bear trap.”

Traders were also reacting to the ADP employment report. It showed the addition of 91,000 jobs in September, which was above the Bloomberg median expectation for an increase of 75,000. The ADP report matched its estimate for August, in which the Labor Department showed an increase of only 17,000 in the event. And, observers noted planned reductions in the military and by Bank of America as headwinds that may make ADP’s numbers difficult to achieve. Still, it was a positive report yesterday.

The ISM non-manufacturing index fell from 53.3 to 53.0 in September, which was better than the 52.8 expected. A reading of 53.0 is consistent with GDP growth of 1% to 2%, according to Capital Economics. This report is hardly exciting news for the economy, but it does suggest that a recession is beyond the current scope of likely events.

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