Why Oil Could Implode

  • May 2, 2001
  • Marc Dupee

Not since crude oil was half of its current prices have
supplies been so high. Or so said the American Petroleum Institute last night in
its weekly roundup of national crude oil and distillates inventory figures. The
supply side of the equation suggests that crude could be as much as twice as
expensive as historical fundamentals warrant: in August of 1999 when crude
stockpiles were this high, oil prices were in the low teens
per barrel. And although demand has grown thanks to gas-guzzling SUVs, record
high prices of gasoline are encouraging the conservation effect, scaling back
consumption. 

The unexpected jump in
the API sent June crude oil
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tumbled across the board with 


heating oil
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clipping .0283 to 1.0301.

Natural gas
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from the Implosion-5 List,
lapped lower and also imploded to a new
five-and-a-half-month low. As pointed out in recent Mid-Day Futures Alerts and
Futures Recaps, nat gas fell out of a four-month descending-triangle pattern
below 5.000 and may have a date with 3.850 — if the contract conforms to
traditional measured-move analysis.  

Factory orders came out
during the bond trading session and turned positive from last month by a
surprisingly strong 1.8% (vs. the +1.5% expected).

T-bonds
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their lows. Doji crosses in the June contract’s intraday (five-minute bars) pullback
from the high implied (short-term) uncertainty and the contract bounced within a
10-tick range after the rally to close 16/32 higher at 101 17/32.

Stock index futures closed mixed as the prospect of lower
profits from crude hurt oil and oil service stocks and worked to restrain blue-chip futures (declines in IBM and MO also hurt). Tech futures traders got
excited about networking and Internet stocks after an analyst said the worst may
be over for broadband. Cisco was the clear leader, punching up to close a penny
off highs at 20.00, a gain of 2.20, or 12%. 

Euphoria over the networking sector sent the
Nasdaq 100 futures
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the gorilla on the Nasdaq 100
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and led the NDX to fill the opening lap-window. The NDM1’s intraday chart then
traced a head-and-shoulders bottom, which slightly over-stretched its measured
move, doubling from the 1955 neckline to a session high of 1993. The contract
closed the session with another H&S, this time a top with the neckline again
at 1955. The NDM1 closed 33.50 higher at 1974.00. S&P futures
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closed down 1.50 handles at 1271.00 and

Dow futures
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Making good on their Implosion-5 List
readings, June lean hogs
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declined 2% each.

The short-covering rally that gave sugar its biggest gain
in months yesterday followed through today to leave the sweetener at a two-month
high. Cargill, an agribusiness giant, was said to be taking deliveries of sugar
from the CSCE division of the New York Board of Trade. If this action is indeed
true, it implies a shortage and Cargill’s willingness to pay higher prices. (Due
to a technical glitch, July sugar did not appear on the Momentum-5 List as it
has since April 25). The July contract closed .02 higher at 8.97, nudging
yesterday’s hefty gains after a down start.

Down for its fourth
straight day and trading just off a four-month low, Implosion-5 List
member cocoa
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out of a head-and-shoulders top but was unable to crack support in the 950-60
area. CCN1 closed down 7 at 969.