Market Share Winning Over Price
OPEC is meeting today in Vienna to determine output
policy and said it would abandon its push to get both member and non-members
to cut output. The news comes just two days after Russia surprised
the market by first saying it would comply with OPEC’s request for
non-members to cut output, and then announcing it would reduce daily
output by only 30,000 barrels a day. This market fundamental determinate was
elucidated in Monday’s Futures
Market Recap.
Russia, the world’s second largest oil producer, is key
because it alone produces about one-third of OPEC’S total output. Non-OPEC member
Norway, the third largest producer, had already said it would not comply
with output cuts. Without output reduction agreements from these two key
producers, OPEC believes it will lose market share to non-members in a
solitary fight to drive prices higher. By OPEC announcing today that it
will, therefore, not cut its own output, it appears to be saying that it is
losing its grip on the global flow — and price –Â of oil. This comes
despite President Bush’s announcement that it will fill stockpiles in the
Strategic Petroleum Reserve to shore up national energy defense policy.
While the refilling of the SPR (a 700-million barrel reserve kept in
abandoned salt mines that stockpiles a month’s worth of America’s oil needs)
is supportive of oil prices, the reserve needs only about 1.5 million
barrels and will be added slowly, over the next year to 18 months.
December crude oil
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heating oil
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all gapped significantly lower, confirming Pullback
From Lows signals from yesterday (and today). Crude is down 8% or 1.87 at
19.80.
The sharpest rise in retail sales figures since the
current method of tabulation was installed in 1992, up 7.1%, suggested to
bond traders the economy is recovering and that the Fed may take its foot off
the economic accelerator and leave its fed funds target rate tool unchanged
when the central bank meets next month. This is hurting T-bonds
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which gapped lower, have struck a low of 109 2/32, then retraced to provide
another short entry at the 109 20/32 area suggested in last night’s Nightly
Futures Report.Â
December fed funds futures
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in a 40% chance of a .25% cut to 1.75 by Christmas.
A preponderance of reversal signals in the currencies
suggested the buck could move higher against the euro FX and Swiss franc. December
dollar index futures
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Sell
setup and Swiss francs
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had
Turtle Soup Plus One Buy signals. Although the markets had moved too far
away to actually trigger their respective signals, the strong countervailing
indicators suggested we could get a reaction to multi-month lows in the
contracts.Â
December cocoa
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nearly another 5% today to tag a contract high and a level not seen since
last February. There was a steep drop with one hour to go in the shortened,
four-hour session. Unable to hold new contract highs, a late gap down
intraday drop of 18 off the high works to provide a confirming signal that a
short-term top is in place and this market will correct. Cocoa exceeded
“the key resistance at 1225” from last night’s Nightly
Futures Report, probably triggering stops, but closed unchanged in a
doji, at 1200 below that level. Cocoa has run up 25% in seven days.
Also from Wednesday’s setups,
January soybeans
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headway into their overhead gap.Â