Crude Oil Price Update
This Commodity Just Hit A Record High (And It’s Not Crude Oil)
by Lee Lowell, Futures Options & Commodities Specialist, Smart Profits Report
Because of the Memorial Day holiday and then swapping columns with Jim last week, it’s been a month since my last commodities update. And boy, is there plenty to update you on… starting with Crude Oil.
It takes real courage to be invested in this market right now, given the volatility involved. Just a few years ago, trading sessions were comparatively sedate affairs, with the price meandering up and down, but not lurching around like we’re seeing today. Multiple dollar moves higher and lower have become the norm.
Crude Oil’s Volatility
For example, when I last wrote, crude oil prices had just topped out at another all-time high of $126 a barrel. Not content with that, it continued to race higher, breaching the $135 mark on May 22 - a level considered unheard of at the time.
The pundits promptly began speculating feverishly on oil’s next move, with even higher dollar values tossed around like confetti. $150! $200!
But it wouldn’t be the crude oil market if it didn’t spring a surprise - and futures then backed off big-time. Over the following two weeks, crude oil shed about $14 a barrel - a development that had the stock market cheering.
And with the national average price per gallon of gasoline having risen every day over a three-week period, motorists also spied some relief at the pump.
Not so fast. On Thursday and Friday last week, crude oil decided to tease investors and consumers alike, shooting off on an unprecedented two-day run. Out of nowhere, oil prices leapt over $17.50 a barrel during those two days - the largest two-day move in the history of oil trading at my former stomping ground, the NYMEX.
On Friday alone, oil prices spiked $10.50 - as you can see on this chart. Even crude oil market veterans and industry experts were taken by surprise. But why such a strong move?
The reasons for the wild two-day crude oil price spike were varied. But it didn’t take much.
The first dagger came early, with the news that the unemployment rate jumped half a percentage point in May, to 5.5% - the biggest monthly spike since February 1986. This whacked the US dollar to the downside.
Then a Morgan Stanley analyst boldly proclaimed that oil will top $150 a barrel by July 4. Given the way it’s traded recently, this might not be so bold after all! And picking the symbolic July 4 date is nothing more than an attempt to grab some headlines.
As if that weren’t enough, there were yet more strong words and tensions in the Middle East, triggering fears over oil supplies.
All it takes these days is a little bullish news from any given source, and it’s off to the races.
Crude oil is back down again today - and by a hefty $3 a barrel. This is still a very volatile market, so if you dare to get involved, make sure you know your maximum risks ahead of time.
Natural Gas Is Rising And The Winds Are Set To Start Blowing
Thankfully, we haven’t seen such rampant volatility in the other main energy market - natural gas.
The market has held its own over the past few weeks. However, that doesn’t mean it’s not worth keeping an eye on. The truth is, while oil continues to overshadow pretty much everything else in the commodities world, natural gas is also charging to higher levels - as this chart shows.
The perception here is that supplies might get bumped down a bit faster than most would like. And of course, as the weather heats up, so too do the tropics, with hurricane season having officially begun, too.
Feeding From The Crude Oil Frenzy
Gold and silver have almost taken a back seat recently, as crude oil dominates the headlines.
But it’s true that the two metals have taken many of their current directional cues from oil over the past few weeks.
For example, just as gold looked like it was getting ready to make a sustained move higher, it fell back over $70 an ounce in tandem with oil. However, that down move took gold to a key support level at its 200-day moving average line (not shown on the chart) and it has since bounced back… right on cue along with the oil market.
From here, there’s a chance that we could see a prolonged upside move for gold, now that it shaken out some of the weaker investors holding long positions in the market.
Silver has traced out a similar move, enjoying a rebound shortly after its decline - and it could also now see some prolonged upside action. Note that gold and silver will move in tandem, so you will see almost identical chart formations.
Soggy Midwest Sends Corn To Record
The biggest news in the food-based commodities world is that corn prices hit a record high last Friday, as heavy rain the Midwest threatens to hit production.
Farmers in the region are have endured their soggiest spring since 1993, which has severely affected corn planting. Of the 86 million acres in US due to be filled with corn, four million are currently sitting idle, with corn still waiting to be planted.
As you can see on this chart, that has resulted in corn futures shooting up to a record high of $6.67 a bushel. Corn prices are up 40% this year - a spike that Americans are seeing reflected at the grocery store through higher food bills.
If farmers are unable to plant their remaining corn crop, they will likely plant other crops in its place and still leave corn prices under pressure.
Scouring The “Softs”
As for the “softs” market (coffee, sugar, cocoa, orange juice & cotton), we’ve seen a mixed bag lately.
Coffee continues move in a very narrow trading range between $1.3000 & $1.4000 per pound - a trend we’ve seen over the past three months now.
However, the market is due for a significant breakout in one direction pretty soon, as a large harvest is coming up, coupled with the yearly frost season in Brazil. These fundamental factors should give this market some life, but for now, the status quo remains.
Sugar continues to see a relentless selloff - one stretching back over the past two months. Each time the market tries to head to higher ground on an intraday basis, it’s quickly smacked back down by the end of the trading session.
One consolation that sugar bulls might have right now is that based on the chart, this market has become extremely oversold and it may be ready to embark on a sustained upside move.
We wrap up with a quick look at orange juice and cocoa…
OJ: The market has dropped a long way over the past few months and may be carving out a bottom here. Like with natural gas, we’ll need to watch OJ closely, since we’ve now officially entered hurricane season in Florida. Any mention of sustained storms (even the fear or perception) and you’ll see orange juice quickly pop higher, as the short sellers try to cover their positions.
Cocoa: This appears to be the strongest market of the softs segment. As you can see here, it has regained almost all of the value it lost in those four frantic trading days back in the middle of March. The combination of a weaker dollar, good foreign demand, and a good technical chart picture may allow cocoa to break out to newer highs in the near-term.
Good trading,
Lee Lowell
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