Volume Recovers along with Bearish Convictions for a Steep Crude Loss Tuesday

North American Commodity Update

Commodities - Energy

Volume Recovers along with Bearish Convictions for a Steep Crude Loss Tuesday

Crude Oil (LS NYMEX) -  $79.08  //  -$1.23 //  -1.53%

Following Monday’s relatively restrained level of activity, crude would find conditions far more interesting today. For the market itself, the commodity would report its biggest daily decline since the February 5th tumble. This price action was further encouraged by a surge volume behind the active NYMEX futures contract (seven times greater than the recent record, non-holiday lull seen yesterday). However, despite the session’s bearish drive; bullish interests would step in to maintain the rising trend channel of the past two-and-a-half weeks. Where was the motivation for such a significant reversal? Risk appetite was no doubt the root of investor activity across the asset classes; but macro-economic data would have its own stirring qualities. Taking stock of sentiment, equities and commodities were lower across the board through the active US session. As has been the case recently, the move away from risky positions (or unwinding existing exposure) has rerouted capital away from assets like crude and to the US dollar. As the primary pricing instrument for oil, the currency’s gains offer a further weight to price action.

While the shifting tides of risk appetite can carry itself under its own momentum, a few big-ticket economic releases no doubt added fuel to the fire (and perhaps catalyzed the initial tumble).The dollar’s rally this morning began as EURUSD responded to the release of the German IFO business sentiment survey for February. Confidence in Europe’s largest economy unexpectedly fell for the first time in 11 months on a combination of harsh weather, uncertainty surrounding consumer spending and the threat that Greece troubles could turn into a Euro Zone financing matter. The sharp drop in the US Consumer Confidence report from the Conference Board amplified the dour mood among investor interests. The present conditions reading of the report marked its lowest reading in 27 years; and with it, expectations of pull-through energy demand has been depressed even further. Turning form macro interests to energy-specific fundamental considerations, inventory data will be released over the next 24 hours. After the close of the US session, the American Petroleum Institute (API) is scheduled to publish its stockpile figures for the week ending February 19th. This data is remarkable in its own right; but for market-influence, the US Department of Energy (DoE) due tomorrow holds the greater influence over price action. Bloomberg’s consensus forecast is looking for a 1.9 million barrel increase (which would account for the longest period of gains in nearly nine months) while gasoline holdings are seen rising by 600,000 barrels (though, as of last week inventories were already at their highest level since March of 2008). 

Watch our weekly, live coverage of the DoE Inventory figures every Wednesday beginning at 10:15 AM EST.

Commodities - Metals

Gold Extends its Pullback, Breaks a Steady Trend Channel as the Dollar Rallies

Spot Gold  -  $1,103.70  //  -$10.55 //  -0.95%

Speculators would initially attempt to hold up gold’s two weeks rising trend channel; but a souring of background sentiment would eventually call the end of this notable technical pattern. Tuesday’s decline measured as much as 1.3 percent through its session low; and the loss through the NYMEX close was the biggest bear run the commodity has seen since the February 4th plunge. For drive, the tumble in equities and subsequent advance for the benchmark dollar would bear down on two of the precious metal’s primary fundamental applications: speculative asset and dollar hedge. It may seem that these two drivers are the same thing. However, a comparison of a speculative benchmark like the Dow Jones Industrial and the benchmark currency itself shows a strikingly different path. Over the past few weeks, the Dow has advanced slowly but steadily; while the dollar has held onto its trend through this same period and even established fresh 8-month highs. With interest rate speculation bolstering real market rates, the dollar is a concern all of its own. Looking ahead to tomorrow, the commodity’s other two primary roles (inflation hedge and safe haven) will be roused by testimony from two key US policy makers. Treasury Secretary Timothy Geithner will speak on government spending going into 2011 – developing sovereign credit concerns and potentially reviving the metal’s tarnished appeal as a store for funds despite its high price. Fed Chairman Ben Bernanke will also testify before a house panel on monetary policy. This will be particularly interesting for rate watchers given the central bank announced a surprise hike to the discount rate last week. 

Spot Silver  -  $15.84 //  -$0.41  //  -2.50%

Just like its more expensive counterpart, silver would suffer its biggest daily decline in nearly three weeks on a marked advance for the dollar and overall slump in speculative fervor. However, unlike gold, this metal would not force is own rising trend channel. Looking at market activity, aggregate open interest among the active futures contracts is near its lowest levels since September 8th as investors lighten their portfolios of speculative positions that don’t bear tangible interest. Tomorrow, the March 2010 futures contract will expire; requiring those that trading this contract to roll over to the next month.

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Written by John Kicklighter, Strategist