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CRUDE OIL MARKET FUNDAMENTALS: Crude oil has extended gains in the overnight trade finding price support from outside market influences, but also from a more optimistic demand view. A bounce back in equities overnight is certainly feeding into the macro economic recovery theme which has lifted June crude oil to the highest price level since early January. Hope that economic conditions are improving has enabled the oil market to push aside its clearly bearish fundamental setup and instead focus on the longer-term prospects for a recovery in oil demand. In fact, a more positive oil demand view is being fostered by news that China’s oil imports in April rose to a near record daily rate. Crude oil prices are also being supported by the IEA chief saying the agency does not plan to lower oil demand in its forecast to be released on Thursday. Part of the gains in oil seem to be on expectations that today’s EIA short-term energy forecast will have a less pessimistic outlook. The weak action in the Dollar also seems to be boosting the appeal of oil as an inflation hedge with sidelined investors now starting to flow back into oil on ideas that energy markets will be quick to respond to any macro economic improvements. With the market focused on the macro economic picture and seemingly little concerned over predictions for another sizable jump in oil stocks in this week’s inventory report suggest bullish sentiment in oil is becoming entrenched. While today’s EIA report could add to volatility this session, the market’s bullish bias suggest price dips off the EIA news may be short lived and attract new buyers. But we still suspect the key to higher oil prices will largely depend on seeing more equity market gains. If equities trade higher, then the bullish technical setup in June crude oil is likely to lift the market into a higher $62.57 to $65.00 price range.

PRODUCT MARKET FUNDAMENTALS: GASOLINE: June gasoline has seen a choppy two sided trade overnight as the market seems to be running into some technical overhead resistance near the $1.71 price level. But the market is also finding support from a refinery problem in Texas and from positive outside market influences. Today’s US trade data is likely to offer more insight on the economy and if it supports the market’s view that economic conditions are showing signs of improvement, it could be enough to push June gasoline to a new high for the move. Another stumbling block for the bull camp may be the EIA’s oil demand report. But given the market’s bullish bias and buying interest coming in on yesterday’s price dip suggest any setback off the EIA or trade news may be short lived.

HEATING OIL: Outside market strength is keeping June heating oil well supported and in a good technical position to take out the March highs. However, with the trade expecting another jump in distillate stocks, today’s US trade news and EIA demand report may need to come out positive to lift June heating oil above key resistance at the $1.5364 price level. A rally above the March high would then put the market on track for a move back to $1.60. The fundamentals are bearish for heating oil, but like crude oil, this market has the potential to trade higher if equity market gains continue to feed bullish oil demand sentiment.

TODAY’S ENERGY MARKET GUIDANCE: The bull camp has the early edge mostly due to the firmer equity markets and a weaker Dollar. But price action could turn volatile and the bull camp’s resolve may be challenged by today’s trade data and EIA oil forecast report.

This content originated from – The Hightower Report.
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