Commodities – Energy
Crude Oil Rises as Alaska Production Reduced by 95%
Crude Oil (WTI) – $89.38 // $1.35 // 1.53%
Commentary: Crude oil is rising almost 1.5% in overnight trade on news that 95% of Alaska's North Slope oil production has been shut down due to an oil leak at a pump station. The region has production capacity of 630,000 barrels per day, or approximately 10% of the United States' total output. While a disruption of over half a million barrels per day is significant, market reaction is rather muted considering that early indications are that the situation will be resolved fairly shortly. Officials from BP, the largest operator on the North Slope, say that it hopes to have production resume within four to six days, though that will be dependent on approval from regulators.
Oil's reaction to this event over the next week will be quite telling. We've already seen a substantial run up to two-year highs in the mid-$90's as the commodity prices in a bullish demand outlook for 2011. If prices manage to make new highs, that will set up a test of $100. On the other hand, a failure would signal that prices are due for a period of consolidation at the very least, perhaps even a meaningful correction.
Technical Outlook: Prices are wedged between $89.63 and $87.80, the 23.6% and 38.2%Fibonacci retracements of the 11/17/10-1/3/11 rally. We see the near-term bias as bearish after prices took out support at a minor rising trend line set from the swing bottom in November. A break below current support exposes the 50% Fib at $86.32.
Commodities – Metals
Gold Little Changed after Falling $50 Last Week
Gold – $1373.90 // $4.33 // 0.32%
Commentary: Gold is little changed to kick off the new week after falling almost $50 last week. Early signs signal that investor demand for the metal may be waning in the face of a gradually-improving economic outlook and the potential for interest rate hikes sometime this year. Already we've seen a nearly 750,000 troy ounce decline in gold ETF holdings. Technical considerations have also turned bearish with some now suggesting that the metal has put in a triple top.
Technical Outlook: Bearish momentum has stalled above horizontal support at $1361.39 having taken out the rising trend line set from late October. Renewed selling targetsthe 38.2% Fibonacci retracement of the 7/28/10-12/7/10 advance at $1326.50. The aforementioned trend line – now at $1375.43 – has been recast as near-term resistance.
Silver – $28.92 // $0.25 // 0.89%
Commentary: Silver fell a sharp 7.3% last week amid a general liquidation of precious metals. Silver rises and falls on the same factors that influence gold. But as silver has risen much more than gold since the second half of 2010, it likely has more to fall should this liquidation continue.
The gold/silver rose to 47.5, as it continues to rebound from December's four-year low at 45.95. (The gold/silver ratio measures the relative performance of the two precious metals. A higher ratio indicates gold outperformance, while a lower ratio indicates silver outperformance).
Technical Outlook: Prices continue to edge lower having taken out support at the bottom of a bearish Rising Wedge formation set from early November,with sellers targeting the 23.6% Fibonacci retracement of the 8/24/10-1/3/11 rally at $28.05. The wedge's lower boundary – now squarely at the $30.00 figure – is acting as near-term resistance.
