The U.S. Department of Energy said that crude oil supplies were up 3.0 million barrels last week at 296.9 million barrels, more than expected, and 100,000 barrels were added to the Strategic Petroleum Reserve. September crude oil dropped $15.88 or 11% to $129.47 to post its largest one week drop in history.
The prognosticators fail to point out that even with the recent sell off prices are still up over 60% ytd, so we are not out of the woods just yet. Next support comes in between $122 and $124 with resistance at $133, followed by $139 on September. We would caution traders to throw in the towel for higher prices and to shift to a bearish bias as the recent decline has taken prices to over sold levels and we still would not rule out a trade above $150 in coming weeks to months. For now we would stand clear until the sell off has fully run its course.
Supplies of gasoline were up 2.4 million barrels and heating oil supplies were up 1.3 million barrels. Over the past four weeks, gasoline demand was down 2.1% from a year ago while distillate demand was up 2.5% from a year ago. In terms of price, RBOB was a loser, shedding 38.26 cents, or 11% trading to levels not seen since the first week of June. Support comes in at $3.12 followed by the 100 day moving average at $3.0650.
September heating oil lost 43.12 cents or 10% and was successful in filling a gap on charts from early June. Significant support comes in between $3.55 and $3.60. We will most likely look for a long entry in heating oil, but would like to see a confirmation of an interim low and reversal in both heating oil and crude before initiating longs for clients.
The U.S. Department of Energy said that underground supplies of natural gas were up 104 billion cubic feet last week to 2.312 trillion cubic feet, more than expected. Supplies are now down 14% from a year ago and down 2% from the five-year average. September natural gas closed down $1.40 on the week at $10.64, the lowest level in three months.
Late last week we saw a quick $3 drop and have now reached the 50% Fibonacci retracement level. With prices extremely oversold, expect prices to reverse and find their way to higher ground on warmer than expected weather or a hurricane forecast. We are pricing out-of- the-money call spreads for September and may probe futures from the long with stops below last week’s lows for clients this week.
The National Confectioners Association said that the U.S. cocoa grind totaled 80,415 tons in the second quarter, down 16% from a year ago. September cocoa fell $116 on the week to $2,799, the lowest close in six weeks. This was largely blamed on fund selling. Prices in the last 2 weeks have come off $500 or 15% and are fast approaching the 50% Fibonacci retracement level. If you took our long entry in cocoa last week you would have gotten stopped out at a slight loss. We will again likely probe for a long entry, but we will look for signs of a bottom before initiating the trade.
September orange juice was up 2.85 cents to $1.2610 ahead of Thursday's USDA orange juice outlook report. The Asian citrus psyllid remains a threat to California's orange groves. We have traded within a 10 cent trading range for the last 2 weeks holding above the 38.2% Fibonacci retracement level on a closing basis and have used this as a window to get positioned long via options for our clients. We feel we are one weather report, one USDA report, or large inflow of fund money into FCOJ away from an explosive move to the upside.
For the last 3 weeks sugar has tried to trade to new contract highs and failed so with the sell off in crude oil and overall commodity liquidation, sugar stumbled last week coming off 1.42 cents or 9%. We closed for March '09 just above the 100 day moving average and do not forecast much more of a correction in the short run. The most we expect is a trade back to 13.50 so we are buying futures and options for customers looking for the move higher to resume.
Cotton is one of the few commodities that did not get hit last week as December cotton only lost 24 ticks. For the last 9 days we have been basing out trading back and forth between 70 and 74 cents looking to determine the direction of the next leg. We favor an upside breakout and the longer we consolidate the larger the move should be expected. We have been and will continue to expect 90 cents in the coming months for the December contract. We would like to see a settlement above the 20 day moving average at 76.50 to confirm a short-term low is in.
Coffee prices continue to track lower as we were unable to get a close above the 100 day moving average last week after several attempts. September coffee lost 4.60 cents nearing levels not seen in 5 weeks. We were able to rally after making a new low for the month so there is still some interest from the long side but not from us. We expect to see a move down to near 130 and then we will start to look for long opportunities assuming the market warrants it at the time.
Risk Disclosure: The risk of loss in trading commodity futures and options can be substantial. Before trading MB Wealth recommends that you should carefully consider your financial position to determine if commodity trading is appropriate for you. All funds committed should be purely risk capital. Past performance is no guarantee of future trading results. There are no guarantees of market outcome stated, everything stated above are our opinions. Calculations of profit and loss have not factored in commissions and fees.
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