CRUDE OIL MARKET FUNDAMENTALS: Crude oil has fallen back a bit overnight in a choppy trade as a lack of early outside market support seems to be leaving the oil market weighed down by a bearish supply/demand setup. The stronger Dollar tied to more bearish Euro-zone economic news has likely been a factor adding to the early selling bias in oil. But if equity markets see strong gains off of GM and Citigroup earning news, crude oil may be quick to overcome the weak tone being seen in the early trade. But it is a bit surprising crude oil so far hasn’t been too supported by news that China’s March refinery output rose for the first time in 5 months suggesting a recovery in fuel demand. The market also hasn’t seen much lasting support from news yesterday that OPEC exports in the month ending May 2nd are expected to drop by another 600,000 barrels per day. At the end of the day, we suspect the crude oil market is having a tough time getting over the fact that oil supplies are near a 19 year high while the API reported US 1st quarter oil demand at an 11 year low. The technical action in June crude oil has also been unimpressive this week and leaves the market in a somewhat weak posture. Despite a push high in equity markets this week, June crude oil hasn’t been able to garner any upside traction. While the market has found support on price dips near the $51.50 level, June crude oil has also set a series of lower highs this week, which is a negative technical indicator. Traders should still expect oil market direction to be mostly influenced by the ebb and flow of the stock market. In fact, if equity markets post sharp gains it certainly could provide a strong lift to oil prices today. On the other hand, the bull camp seems to lack conviction and if equity markets stumble, we suspect the technical setup will leave June crude oil vulnerable to a slide back to test the $50 price level. A close over $53 will need to be seen in order to improve the market’s short-term technical posture. Close in resistance for June crude oil comes in at $52.16 then $52.50 and above there at $53.00 with support at $51.60 then $51.45 and below there at $51.21.
GASOLINE: June gasoline has waffled on either side of unchanged in the early overnight action. The market seems to be running up against tough resistance near the $1.50 price level and hasn’t been able to make a push towards the upper end of the range this week despite equity market gains providing a brighter macro economic view. Perhaps forecasts for only a modest pickup in summer driving demand by AAA travel group is keeping the bull camp a bit hesitant. While the low refinery operating rate paves the way for gasoline stocks to tighten this spring, fuel supplies are still above the 5 year average right now and that may be a limiting factor for the bull camp. While the economic news this week has provided some glimmer of hope that the worst of the recession has passed, doubts remain. Until a more optimistic macroeconomic view can take hold or the supply/demand balance improves a bit more, June gasoline will likely be confined to a $1.53 to $1.42 trading range.
HEATING OIL: June heating oil continues to coil in a tight trading range and that tends suggest that a direction decision will soon be made. It is a bit surprising the market hasn’t garnered much support from news of a pickup in Chinese diesel fuel demand. But with US distillate stocks very high and distillate demand falling at a sharp rate, a price move back above $1.50 level may prove difficult unless strong macro economic optimism takes hold. The fundamental setup favors the bear camp, but if equity market strength can provide a fresh dose of optimism then June heating oil may make another attempt at the $1.50 price level.
TODAY’S ENERGY MARKET GUIDANCE: The bull camp in oil has shown a lack of conviction this week. But if good corporate earnings results trigger a strong bullish response in equity markets today, oil markets may be able to end the week on a strong note.