3SOF

Monday, February 7, 2011...

•   March crude oil prices this morning are trading up +28 cents a barrel and March gasoline is +2.97 cents per gallon. Crude oil and gasoline prices last Friday spiked higher early but then sold-off and finished lower on concern the US economy is not producing enough jobs to increase energy demand: CLH11 -1.51, RBH11 -6.77.

                Bearish factors included (1) dollar strength, which may curtail investment demand for commodities, and (2) the weaker-than-expected Jan US payrolls report, which questions the sustainability of the US economic recovery and fuel demand.

                Bullish factors included (1) a temporary spike higher in gasoline prices after the US unemployment rate in Jan unexpectedly fell to a 1-3/4 year low, and (2) concerns that the civil unrest in Egypt will spill over into the major oil-producing regions of the Middle East or force the closure of the Suez Canal.

Crude Oil & Commodities...

Brent Crude broke psychological resistance at $100/barrel as the up-trend accelerates.

Steep price rises are evident across a broad range of commodities — as with copper on the above chart. This is already causing an upsurge of inflation in emerging economies, and will flow through to developed economies as they start to recover. The bad news is: the longer the lag, the more persistent inflation will be when it does take hold.

Tuesday, February 8, 2011...

•   March crude oil prices this morning are trading down -$1.14 a barrel and March gasoline is -1.25 cents per gallon as China's interst rate hike undercuts commodities. Crude oil and gasoline prices yesterday traded sideways to lower and settled mixed as the dollar strengthened and tensions eased in Egypt: CLH11 -1.55, RBH11 +1.52. Mar crude slipped to a 1-week low.

                Bearish factors included (1) the rally in the dollar index to a 2-week high, which may curb investment demand for commodities, and (2) reduced tensions in Egypt after Egyptian Vice President Suleiman promised within a month to draft a list of constitutional changes needed for free elections.

                Bullish factors included (1) strength in gasoline on concerns that several refinery closures by ConocoPhillips in Texas, Exxon-Mobile in Louisiana and Valero Energy in Aruba may limit US gasoline supplies, and (2) the rally in the S&P 500 Index to a 2-1/2 year high, which bolsters confidence in the economic outlook a nd energy demand.

Wednesday, February 9, 2011...

•   March crude oil prices this morning are trading up +40 cents a barrel and March gasoline is +1.32 cents per gallon. Crude oil and gasoline prices yesterday fluctuated on either side of unchanged as the action by China to raise interest rates was offset by refinery shutdowns that may limit gasoline supplies: CLH11 -0.54, RBH11 +0.95. Mar crude and Mar gasoline fell to 1-week lows.

                Bearish factors included (1) the action by China to raise interest rates for the third time since mid-Oct, which may slow China's economy and its fuel demand, (2) an easing of the political tension in Egypt, which reduces chances of civil unrest spreading throughout the Middle East that may disrupt global oil supplies, (3) carry-over weakness from a fall in natural gas prices to a 1-1/2 month low after the DOE raised its forecast for 2011 US natural gas production to 62.43 billion cubic feet a day from last month's forecast of 61.38 billion cubic feet a day, and (4) the outlook for US crude s upplies to increase for a fourth week when the DOE releases its weekly inventory figures on Wed.

                Bullish factors included (1) the weaker dollar, which boosts investment demand for commodities, and (2) strength in gasoline on concerns that several refinery closures by ConocoPhillips in Texas, Exxon-Mobile in Louisiana and Valero Energy in Aruba may limit US gasoline supplies. Expectations for Wednesday's weekly DOE inventory report are for crude oil stockpiles to increase by +2.0 million bbl, gasoline supplies to rise +2.7 million bbl, distillate inventories to fall -1.0 million bbl and the refinery utilization rate to fall -0.2 to 84.7%

Thursday, February 10, 2011...

•   March crude oil prices this morning are trading down -44 cents a barrel and March gasoline is -0.57 of a cent per gallon. Crude oil and gasoline prices yesterday gyrated on both sides of unchanged and settled mixed as a weaker dollar offset the rise in US gasoline supplies to a nearly 21-year high: CLH11 -0.23, RBH11 +3.18.

                Bullish factors included (1) the weaker dollar, which boosts investment demand for commodities, and (2) the action by pirates to hijack a US bound supertanker of Kuwaiti oil off the coast of Oman, which may increase the costs of shipping oil as insurance rates rise and shippers take longer routes to avoid pirate filled waters.

                Bearish factors included (1) comments from Fed Chairman Bernanke who said the US unemployment rate is likely to remain high "for some time," which may keep US economic growth and energy demand stagnant, (2) the larger-than-expected increase in US gasoline inventories (+4.66 million bbl to 240.9 million bbl, the high est since March 1990 and more than expectations of +2.7 million bbl), (3) slack gasoline demand, as measured by deliveries to wholesalers, which fell -0.3% to 8.52 million barrels a day, the lowest level in a year, and (4) the unexpected increase in distillate supplies (+288,000 bbl versus expectations of a -1.0 million bbl decline).

Friday, February 11, 2011...

•   March crude oil prices this morning are trading up +22 cents a barrel and March gasoline is +0.92 cents per gallon. Crude oil and gasoline prices yesterday fluctuated on either side of unchanged and settled mixed as a stronger dollar and the IEA's action to raise its global crude demand forecast gyrated prices: CLH11 +0.02, RBH11 -5.62. Mar gasoline rallied to a 2-1/3 nearest-futures high but erased its gains and settled lower.

                Bullish factors included (1) the action by the IEA to raise its 2011 global oil demand forecast for a fifth month by +140,000 barrels a day from its Jan forecast to 89.3 million bpd and say that oil supplies in the OECD countries fell by 55.6 million bbl to a 2-year low of 2.67 billion bbl in Dec, and (2) the larger-than-expected decline in weekly US initial unemployment claims to their lowest level in 2-1/2 years, which signals improvement in the labor market that may lead to increased fuel demand.

                Bearish factors included (1) dollar strength , which reduces investment demand for commodities, and (2) updated weather forecasts that call for above-normal temperatures for the US Northeast from Feb 15-23, which may reduce demand for heating fuels.

Crude Oil & Commodities...

Brent Crude is in an accelerating up-trend. Twiggs Momentum (21-day) oscillating above zero confirms a strong trend. The target is $110/barrel*.

* Target calculation: 90 + ( 90 - 70 ) = 110

Monday, February 14, 2011...

•   March crude oil prices this morning are trading down 3 cents a barrel and March gasoline up +2.28 cents per gallon. Crude oil and gasoline prices last Friday settle lower due to a stronger dollar and after Egyptian President Mubarak stepped down: CLH11 -$1.15, RBH11 -0.46. Mar crude fell to a 2-1/2 month low.

                Bearish factors included (1) the rally in the dollar index to a 3-week high, which reduces investment demand for commodities, (2) the action by Egyptian President Mubarak to step down and hand power to the Egyptian military, which reduces concern that crude shipments from the Middle East will be disrupted, and (3) carry-over weakness from the plunge in natural gas prices to a 2-3/4 month low on speculation that demand for heating fuels will weaken after the Commodity Weather Group predicted warmer-than-normal temperatures in the eastern two-thirds of the US from Feb 16-20.

                Bullish factors included (1) the prediction from Deutsche Bank that China may increase its crude oil imports this year by 530,000 barrels a day or 11% to 5.4 million barrels as additional emergency storage tanks come into operation as it continues its stockpiling of commodities, and (2) the increase in Feb US University of Michigan consumer confidence to an 8-month high, which may portend to increased consumer spending and demand for fuel.

Tuesday, February 15, 2011...

•   March crude oil prices this morning are trading up +41 cents a barrel and March gasoline is up +0.31 of a cent per gallon. Crude oil and gasoline prices yesterday fluctuated and settled mixed as the dollar strengthened and undercut crude but a fire at a St. Croix refinery lifted gasoline as it threatens to limit US gasoline supplies: CLH11 -$0.77, RBH11 +5.22. Mar crude fell to a 2-1/2 month low and Mar gasoline climbed to a 2-1/3 nearest futures high.

                Bearish factors included (1) the rally in the dollar index to a 3-week high, which reduces investment demand for commodities, (2) reduced concern that civil unrest in the Middle East will disrupt crude supplies after Egypt's ruling army council said it aims to transfer power within 6 months to a democratically elected government, and (3) comments from the UAE oil minister who said the oil market is "well supplied" and that OPEC is ready to provide more crude to consumers as demand grows.

                Bullish factors inclu ded (1) strength in gasoline prices as a fire in the 525,000 barrel a day Hovensa LLC refinery in St. Croix threatens to limit US gasoline supplies, (2) the +27% y/y increase in Jan China crude oil imports to a 4-month high of 21.5 MMT, which signals strong demand, (3) the larger-than-expected increase in Jan China exports and imports, which suggests growing demand in the world's largest energy-consuming country, and (4) the warning from JPMorgan Chase that the departure of Egyptian President Mubarak "inspires" protesters in the Middle East and that "the prospect of regional contagion impacting a key oil supplier appears elevated.

Oil drops on demand and inventory concerns.

NEW YORK | Tue Feb 15, 2011 5:06pm EST

NEW YORK (Reuters) - Brent oil fell more than 1 percent on Tuesday in volatile trading as disappointing U.S. retail sales growth and China's battle against rising inflation boosted worries about demand from the world's two largest energy consumers.

U.S. crude prices pulled back ahead of weekly oil inventory reports expected to show U.S. crude oil stocks rose last week.

While protests in Iran and other Middle East countries remained a concern, analysts looked for some unwinding of the geopolitical fear premium put in during Egypt's protests.

"There may be some unwinding of the fear premium on overall risk reduction as the Middle East hasn't gotten out of control yet and traders also are getting ready for another expected rise in U.S. oil supplies," said Phil Flynn, analyst at PFGBest Research in Chicago.

Brent's more pronounced retreat had some traders and analysts expecting the wide gap between the two benchmarks to come under pressure.

Brent crude for April delivery fell $1.44 to settle at $101.64 a barrel. Prices hit a 28-month peak at $104.30 on Monday.

U.S. crude for March delivery fell 49 cents to settle at $84.32 a barrel.

Brent's premium to U.S. crude seesawed between $13.24 and $14.90 on Tuesday. Brent's premium to U.S. crude surged to a record above $16 a barrel on Friday, still measuring the two March contracts before the March Brent's expiration.

"That Brent/WTI spread may be getting a little heavy," said Richard Ilczyszyn, senior market strategist at Lind-Waldock in Chicago.

U.S. crude has been dogged by high crude oil inventories, especially at the landlocked Cushing, Oklahoma, contract delivery point for the benchmark West Texas Intermediate.

U.S. crude stocks fell 354,000 barrels in the week to February 11, against expectations supplies would be up, according to the industry group the American Petroleum Institute's weekly report released late on Tuesday.

But Cushing stockpiles rose 250,000 barrels, the API said.

Distillate stocks fell 1.2 million barrels and gasoline stocks rose 1.2 million barrels, according to the API.

U.S. crude prices held losses in post-settlement trading after the release of the report.

Analysts surveyed by Reuters ahead of the API report expected U.S. crude inventories to be up 2.2 million barrels last week.

Distillate stocks were forecast down 800,000 barrels while gasoline stocks were expected to be up 1.7 million barrels.

The U.S. Energy Information Administration's report is set for release at 10:30 a.m. EST on Wednesday.

CHINESE INFLATION

China's consumer price inflation came in lower than expected for January at 4.9 percent.

But core inflation, stripped of volatile food prices, jumped to 2.6 percent year on year, the highest since at least 2002 and up from 2.1 percent a month earlier.

Concern that China may continue monetary tightening and curb demand growth pulled copper prices off record highs.

MIXED U.S. ECONOMIC DATA

U.S. stocks slid as energy shares pulled back, and after initially slipping on the smaller-than-expected rise in retail sales that fueled doubts about consumer spending. .N

U.S. retail sales growth slowed in January, but at least some oil traders and analysts saw the data as supportive or neutral considering the extreme weather that curbed shopping traffic.

U.S. retail gasoline demand fell for a second consecutive week, affected by rising retail prices, a report from MasterCard showed. Demand was up and gasoline prices were up 19.5 percent from the year-ago period.

Early on Tuesday, some brokers and analysts pointed to supportive data such as the New York Federal Reserve's gauge of manufacturing in New York State which climbed in February to its best mark since June.

Wednesday, February 16, 2011...

•   March crude oil prices this morning are trading up +24 cents a barrel and March gasoline is +1.57 cents per gallon. Crude oil and gasoline prices yesterday fluctuated on both sides of unchanged and finally settled lower as concerns over increasing crude supplies offset fears of escalating civil unrest in the Middle East: CLH11 -$0.49, RBH11 -2.86. Mar crude sank to a 2-1/2 month low.

                Bearish factors included (1) the weaker-than-expected Q4 Euro-Zone GDP, which signals slower than expected energy consumption in Europe, (2) weaker than expected US Jan retail sales, signaling reduced fuel demand, and (3) the outlook for US crude supplies to increase for a fifth straight week when the DOE reports weekly crude inventories on Wed.

                Bullish factors included (1) the weaker dollar, which boosts investment demand for commodities, (2) concerns that crude supplies may be disrupted after civil unrest spread to Bahrain, Yemen and Iran, the second-largest OPEC producer, and (3) the larger-than-expected increase in the Feb Empire manufacturing index to an 8-month high, which indicates economic expansion and increased fuel consumption. Expectations for Wednesday's weekly DOE inventory report are for crude supplies to increase +2.0 million bbl, gasoline stockpiles to climb +1.65 million bbl, distillate inventories to fall -400,000 bbl and the refinery utilization rate to slip -0.1 to 84.6%.

Thursday, February 17, 2011...

•   March crude oil prices this morning are trading down -28 cents a barrel and March gasoline is -0.72 of a cent per gallon. Crude oil and gasoline prices yesterday moved higher on rising Middle East tensions and on lower than expected increases in weekly crude supplies: CLH11 +$0.67, RBH11 +5.59.

                Bullish factors included (1) the weaker dollar, which boosts investment demand for commodities, (2) the lower-than-expected increases in weekly crude and gasoline supplies (crude +860,000 bbl versus expectations of +2.0 million bbl and gasoline +205,000 bbl versus expectations of +1.65 million bbl, (3) the larger-than-expected draw in weekly distillate supplies (-3.10 million bbl versus expectations of -400,000 bbl) and (4) rising tensions in the Middle East after civil unrest spread to Libya, the holder of Africa's largest oil reserves and after Israeli Foreign Minister Lieberman said 2 Iranian gunboats are planning to move through the Suez Canal to Syria, which spurred concern that oil shipments may be disrupted.

                Bearish factors included (1) the prediction from energy researcher JBC Energy GmbH that the narrowing spread between premium fuels such as naphtha and cheaper heavy fuel oil may signal a slowdown in the world economy, and (2) despite the smaller-than-expected increase in weekly gasoline supplies, US gasoline supplies now stand at 241.1 million bbl, a nearly 21-year high and a sign of slack demand.

Crude Oil & Commodities...
Brent Crude continues in an accelerating up-trend. Twiggs Momentum (21-day) oscillating above zero confirms a strong trend. The target is $110/barrel*.

* Target calculation: 90 + ( 90 - 70 ) = 110

The CRB Commodities Index continues in a strong upward trend channel, bearish divergence on Twiggs Momentum (21-day) continues to warn of a correction. Reversal below the lower channel would strengthen the signal.

Friday, February 18, 2011...

•   March crude oil prices this morning are trading down -10 cents a barrel and March gasoline is +0.66 of a cent per gallon. Crude oil and gasoline prices yesterday fluctuated on both sides of unchanged and settle mixed as rising Middle East tensions offset a larger-than-expected increase in US jobless claims: CLH11 +$1.37, RBH11 -1.70. Mar gasoline climbed to a 2-1/3 year high but erased its gains and closed lower.

                Bullish factors included (1) the weaker dollar, which boosts investment demand for commodities, (2) escalating tensions in the Middle East as demonstrators clashed with police in Bahrain and Libya, the holder of Africa's largest oil reserves, and after Iran said it plans to send 2 warships through the Suez Canal, which raised concern about a possible confrontation with Israel, and (3) the increase in the Feb Philadelphia Fed manufacturing index to its best level in 7 years, which indicates strength in the economy and increased fuel consumption and demand.

                Bearish factors included (1) the larger-than-expected increase in weekly US jobless claims, which indicates a weak labor market that may hinder fuel demand, and (2) the forecast from the National Weather Service's Climate Prediction Center for normal temperatures for the US Northeast from Feb 22 through Mar 2, which may lead to reduced demand for heating fuels.