Commodities – Energy 

Crude Oil Reaches New 26-Month High on Supply Issues 

Crude Oil (WTI) - $91.14 // $0.03 // 0.03%

Commentary: Crude oil rallied strongly for a second day on Tuesday due to the same factors that influenced trading in the day before. WTI added $1.86, or 2.08%, to settle at $91.11, while Brent advanced $1.91, or 2%, to settle at $97.61, a new 26-month high. Production in Alaska still remains shut-in due to a pipeline leak, but the latest news is that flows may be soon restarted (at least temporarily) to prevent freezing in the line. In any event, this whole event will may lead to several million barrels of lost production, but will likely have no major, lasting impact. There is always the risk that production stays offline longer than expected though, so until the situation is completely resolved, oil may stay well-bid. Incidentally, there was a temporary outage at a Gulf of Mexico production platform operated by Chevron on Tuesday, but production there was quickly restored. 

In the bigger picture, crude oil continues to benefit from robust growth in the global economy and uncertainty with regard to non-OPEC supply. As long as OPEC keeps production restrained as it has been doing, prices will be responsive to these supply disruptions. Nevertheless, at nearly $98, the price has already accounted for many of these bullish factors. The commodity may have difficulty moving into the triple digits until there is more clarity on the outlook for this year’s supply and demand balances. 

Tomorrow will bring the DOE report on U.S. petroleum inventories. The API report which is released a day ahead was decidedly bearish, with the industry source reporting a 50K build in crude stocks, a 7 million barrel build in crude stocks, and a 1.6 million barrel build in distillate stocks. 

Technical Outlook: Prices have rebounded above resistance at $89.63, the 23.6% Fibonacci retracement of the 11/17/10-1/3/11 rally. From here, the bulls target a retest of January’s swing top at $92.58, a level reinforced by support-turned-resistance at rising trend line set from the swing bottom in November. The 23.6% Fib has been recast as near-term support.


Commodities – Metals

Gold Continues to Rebound off Technical Support 

Gold - $1385.47 // $3.95 // 0.29% 

Commentary: Gold rose modestly for a second day, adding $5.85, or 0.43%, to settle at $1381.53. Like on Monday, the U.S. Dollar fell slightly, and that seemed to be the catalyst for the day’s trading. Prices have also gotten a boost from technical buying after support near $1361 held for multiple days. The themes we are following as they relate to gold price action are the following: 1) the prospect for interest rate hikes in developed economies and how they impact investor demand for gold and 2) investor demand for gold independent of an immediate tightening of monetary conditions (i.e. has investor demand for the metal reached a saturation point?) 

Technical Outlook: Prices have mounted a shallow recovery from horizontal support at $1361.39, with the bulls targeting initial resistance at the $1400 figure. A break above this juncture exposes the triple top at $1424.60. Near-term support stands at a rising trend line set from late October, now at $1364.91.


 Silver - $29.72 // $0.20 // 0.68% 

Commentary: Silver settled at $29.52 on Monday after advancing $0.43, or 1.47%, an identical gain to that on Monday. ETF holdings continued to dip, however, declining by almost 1.2 million troy ounces to 480.5 million, over 7 million below the record level set in mid-December.

The gold/silver ratio fell to 46.6, but remains above the four-year low near 46 set last month. (The gold/silver ratio measures the relative value/performance of the two precious metals. A higher ratio indicates gold outperformance, while a lower ratio indicates silver outperformance) 

Technical Outlook: Prices are drifting higher having after bearish momentum stalled ahead of support at $28.05, the 23.6% Fibonacci retracement of the 8/24/10-1/3/11 rally. The bulls initially target support-turned-resistance at the bottom of a bearish Rising Wedge formation set from early November, now at $30.25, that was broken last week.The 23.6% level remains as near-term support.