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Crude Oil Gains Despite Negative News Flow, Gold to Follow Stocks Higher

Crude Oil Gains Despite Negative News Flow, Gold to Follow Stocks Higher

2011-03-30 06:33:00
Ilya Spivak, Sr. Currency Strategist

Commodities – Energy

Crude Oil Gains Despite Negative News Flow

WTI Crude Oil (NY Close): $104.79 // +$0.81 // +0.78%

Commentary: Crude oil prices have rebuilt a significant positive short-term correlation with the MSCI World Stock index, suggesting the spotlight has shifted from the crisis in the Middle East toward demand expectations. With that in mind, explaining today’s advance is a tall order considering a host of negative factors that ought to have sunk risk appetite, from the downgrades of Greece and Portugal at S&P to a sharp drop in US Consumer Confidence, which fell for the first time in six months to the lowest since December. Preliminary inventory figures from API also didn’t prove supportive, showing crude stocks rose to the highest in four months last week. Inexplicably, some news outlets chalked up the advance to reports that Saudi Arabia – the world’s top oil exporter – was planning to boost the number of operating drilling rigs by 28 percent, a development that reasonably seems to boost supply and ought to be putting downward pressure on prices. On balance, one possible explanation for the advance may be the steady decline in trading volumes in the WTI contract and world stock markets alike, with thin conditions contributing to erratic price action. Looking ahead, a preliminary reading on the US labor market from ADP and the official set of inventory figures from the DOE are in focus, although it seems to be anybody’s guess how price action will respond to the results given today’s performance.

Technical Outlook: Prices have broken higher out of a near-term falling channel to meet resistance at $104.83. A pullback from this juncture has taken crude lower to retest the channel top as support, a barrier reinforced by the $104.00 figure. On balance, positioning is generally bullish, with a break through $104.83 and the $105.00 figure initially exposing $105.60. Only a sustained break below $104.00 would materially change the bias back into the bears’ favor, targeting an initial decline to $103.60.

Crude_Oil_Gains_Despite_Negative_News_Flow_Gold_to_Follow_Stocks_Higher_body_032911_OIL.png, Crude Oil Gains Despite Negative News Flow, Gold to Follow Stocks Higher

Commodities – Metals

Gold Poised to Follow Stocks Higher

Spot Gold (NY Close): $1418.50 // -$1.90 // -0.19%

Commentary: Gold looked past its increasingly firm positive relationship with risk appetite, edging lower as three consecutive days of declines in ETF holdings – a proxy for investment demand – continued to weigh on prices. The overall uptrend in holdings in place over the past month remains intact however and the increasingly correlation between spot and the MSCI World Stock Index is likely to reassert its dominance. Shares soared in Asia and stock index futures tracking top European and US exchanges are firmly in positive territory, hinting the yellow metal is poised to rebound.

Technical Outlook: Prices are stalling following a re-test of resistance-turned-support at a falling trend line set from the March 2 session high. A break lower exposes support at $1393.85, while a bounce opens the door for a retest of $1439.95.

Crude_Oil_Gains_Despite_Negative_News_Flow_Gold_to_Follow_Stocks_Higher_body_032911_GLD.png, Crude Oil Gains Despite Negative News Flow, Gold to Follow Stocks Higher

Spot Silver (NY Close): $37.05 // -$0.10 // -0.27%

Commentary: As with gold, the increasingly significant correlation between silver and the MSCI World Stock index suggests the metal is due to rebound from recent weakness as stock index futures point to broad-based gains across European and US exchanges. Silver ETF holdings jumped to a fresh record high last week and the gold/silver ratio has continued to trend firmly lower, suggesting the cheaper metal will continue to outperform its more expensive counterpart.

Technical Outlook: Prices are consolidating having broken out of a rising channel carved out over the past two weeks. Initial resistance lines up at $37.15, with a break higher exposing the $37.66-38.15 area. Support stands at $36.50, with a drop below that clearing the way for a downside challenge of the $36.00 figure.

Crude_Oil_Gains_Despite_Negative_News_Flow_Gold_to_Follow_Stocks_Higher_body_032911_SLV.png, Crude Oil Gains Despite Negative News Flow, Gold to Follow Stocks Higher

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