The Wizetrade Commodities Blog

In a May 24, 2009 Reuters article G8 energy leaders urge stable oil prices, consumer nations were quoted as urging “[oil] producers to keep oil prices stable or risk derailing a fragile global economic recovery, as top exporter Saudi Arabia forecast prices eventually moving toward $75 a barrel.”

 

There are several items to consider in this position from G8 energy leaders:

1)      Supply and demand.

2)      The price target for OPEC is $75 a barrel (someday).

3)      The ground work for blaming high energy prices for an economic downturn has been laid at the feet of OPEC.

4)      The price of oil is now the responsibility of OPEC and not related in any way to inflation or future hyperinflation caused by the glut of U.S. Dollars poured into the global economy by the Federal Reserve.

 

Supply and demand controls the prices of most commodities of which these “energy leaders” know NOTHING. Fear of dwindling supplies drives the price up, and, supposedly, lack of fear (greed) drives it down. In the past year, OPEC agreed to cut 4.5 million barrels a day from production; the final 1.5 million barrel reduction due to commence in November, 2009. The stage is set for higher oil prices if the members of OPEC can stay together, which they haven’t before. It seems strange to think of rising oil prices without the term “peak oil” just one year after all the hype about it. 

 

Oil, priced in dollars, is exchanged on international markets and generally moves inverted to the dollar. If the dollar falls, oil prices rise; no supply and demand, just plain currency trading. OPEC is now saddled with controlling US Dollar supply. Now we have a scapegoat (those greedy Saudi’s) when oil prices hit $75 per barrel or the economy falters again or both.

 

The most arrogant kick in the teeth delivered to OPEC from these energy masterminds has to be the energy policy each of these nation’s political leaders currently promote: Getting rid of OPEC oil.

 

So, let’s get this straight! G8 energy Czars want OPEC to control inflation caused by a US budget totally out of control? And, in spite of strangling their economies with cheap oil prices, you ask them to increase oil production and glut the market with the one export they have while you work to eliminate the need for all oil products in the future? Why don’t we just ramp up domestic oil production?

You BET!

5 yr. & 10 yr. notes and Bonds are Financial COMMODITIES, they must be, we trade them in Wizetrade Commodities.  So after taking a couple of weeks off, the US Government offers new debt to investors.  Notes and Bonds which normally improve when investors exit the stock markets, like they did this week, did not improve.  The increased supply has been met with a lack of demand as rising national debt outpaces GDP growth, or a lack there of.

Additionally, money taken out of the markets this week did not find its way back to the US Dollar and the USD weakened, providing support to other commodity prices as it take more weak dollars to buy something than strong dollars.

For additional insights, feel free to check this post on www.bloomberg.com , http://www.bloomberg.com/apps/news?pid=20601087&sid=azKCkG5fBATc&refer=home

Continuing with the pumping up of the stock markets, commodity prices rising are being touted as good for the economy. We are into “The Economy Is Saved” phase of the Game. The next phase, getting the small investor to buy in will begin within the next wave up. The bottom needs to be established as having held and the new wave up will entice most of the trend buyers into the market.

A move past 9000 DOW will allow the hedge funds partial sales of their toxic assets. These have been purchased at 3% – 5% equity. The profit is already made “an enormous wealth transfer to Wall Street.” (See The Way the Game is Played Part 2) and is guaranteed by Treasury. The assets can be sold at or near what should have been true value of 15% equity to the public with the Treasury guarantee in tact and spun to be at “fair value.”

An increase in mortgage interest rates, to defer risk in the bailout of financing sub prime borrowers and passed to new borrowers, should initiate some healthy numbers for housing and with an increase in national real estate property values, the toxic assets will rise in value with the sales pitch “the worst have been foreclosed; the remaining are being bailed out with refinancing.” This new wave of financing may be packaged as better than ever CDOs, less toxic than the current Treasury backed models.

The stage will be set for the third and final exuberance wave up in the markets to 1998-9 highs. This final wave should skyrocket with the small weak speculators throwing in the last of their cash.

Interest rates will have to rise for the following reasons. 1) Investors won’t be parked in notes at current interest rates with a falling dollar. 2) The Game needs the money in the Indices. 3) Inflation will be rearing its inevitable head reflected in commodity prices. Volker’s solution to double digit inflation in the late 70’s was to raise interest rates and he is a principal advisor to President Obama.

The following is the propsed list of markets with symbols for the new edition on Wizetrade Commodities.

 

54 Markets

 

GRAINS 7

E – Corn  ZC

 

E- Mini Soybeans XK

 

E – Oats ZO

 

E - Bean Meal ZM

 

E - Bean Oil ZL

 

E – Soybeans ZS

 

E – Wheat ZW

 

FINANCIALS 5

10 YR Notes ZN

 

5 YR Notes ZF

 

Eurodollar GE

 

US Bonds ZB

 

2 YR Notes ZT

 

METALS 10

NYSE Big E Gold YG

 

NYSE Big E Silver YI

 

NYSE e-mini Gold ZG

 

NYSE e-mini Silver ZI

 

NYMEX Platinum PL

 

COMEX Silver SI

 

COMEX Gold GC

 

COMEX Copper HG

 

COMEX mini Silver QI

 

COMEX mini Gold QO

 

 

INDICES 11

Russell e-mini 2000 AB

 

E-mini DOW YM

 

$10 DOW ZD

 

US $ Index DX

 

Nikkei 225 NK 

 

NASDAQ 100 e-mini NQ

 

NASDAQ 100 Futures ND

 

S&P 500 e-mini ES

 

S&P 500 Futures SP

 

NASDAQ Composite (N/A) QCN

 

S&P Midcap 400 (N/A) MC

 

ENERGY 6

MiNY Crude Oil QM

 

MiNY Natural Gas QG

 

Crude Oil CL

 

Heating Oil HO

 

Natural Gas NG

 

Unleaded Gasoline RB

 

MEATS 3

Feeder Cattle GF

 

Lean Hogs HE

 

Live Cattle LE

 

SOFTS 5

Cocoa CC

 

Coffee KC

 

Cotton CT

 

Orange Juice OJ

 

Sugar #11 SB

 

CURRENCIES 6

Japanese Yen 6J

 

Australian Dollar 6A

 

British Pound 6B

 

Canadian Dollar 6C

 

Euro FX 6E

 

Swiss Franc 6S

 

 

The Asian and early European Markets turned bearish overnight and Analysts are stating that the S&P may be overextended in gains from the recent bullishness in the markets.  If selling continues in the US Trading session today we could see a little USD strength today that could result in weaker commodity prices.  Add to this a little retreat in crude prices from recent highs and this could put some selling pressure on grains today.

A report from Bloomberg suggest that record yields (supply side) in Palm Oil and Soy Oil could put some selling pressure on Soy Oil so be careful if you have been long on Soy Oil.

From the Chart of the Day:

The Future Focus Chart of the Day is the Short Term Chart for June Live Cattle as we see a bearish wedge pattern that is providing for an opportunity for prices to break in either direction.  Here is what we are watching for today and in the coming days.  If the price today breaks through yesterday's highs and closes higher, we are looking for a trend reversal, if the pair falls through yesterday's lows and closes lower then we will be looking for a continuation of the short side trend.  If the pair closes inside of yesterday's range, then we will still be watching for the breakout the next day.

UPDATE: The USD was weak overnight, but has strengthened a little today putting selling pressure on commodities, this has allowed June Contract prices on Live Catte to decline today from 82.0 to 81.20 .  Livestock prices were expected to climb today, but the equity investor's have backed out, maybe waiting for Non Farm Payroll Employent data tomorrow morning.

I'm continuing to watch the Eurodollar as lending rates amongst banks decline to below 1%.  FROM BLOOMBERG.COM "The Libor-OIS spread, a gauge of banks’ reluctance to lend, narrowed today to the lowest level since Sept. 1.

Libor, which reached 4.82 percent following the collapse of Lehman Brothers Holdings Inc. in September, tumbled after the Federal Reserve and the U.S. government provided $12.8 trillion to bail out the banking system and spur lending. The rate, set by the BBA in London, determines borrowing costs on about $360 trillion of financial products worldwide, ranging from home mortgages to corporate bonds.

“Confidence is returning to the market, so I would say so far so good,” said Brian Delany, a money-market trader on the dollar desk at Bank of Ireland Plc in Dublin. “But it’s about being consistent.”

 

UPDATE Thursday 05.07.09 The European Central Bank cut interest rates from 1.25% to 1.00% and also declared that they would be purchasing 80 Billion in long term debt to help thaw credit markets.  The Eurodollar saw 99.14 this morning as this was being done, and is currently at 99.13.

The Future Focus Chart of the Day is August contract Feeder Cattle on the Short Term chart, as we saw a follow through on the selling from the Friday session that resulted in a break of support on the 180 minute chart.  Feeder Cattle could firm up a bit at this point, but Friday's trade set up livestock for downside pressure.  Helping to stabilize commodities today are increases in the energies, and bullishness in the equity markets providing some weakness to the USD.  Pork is still fighting restricted exportation from the US to certain countries and questions about the impact of Swine Flu on pork products (none really, but sell that to the public).

Remember, you can get a good sense of the drivers for commodities at www.cmegroup.com and select the Education tab on the left, and Market Commentary for pre-market, mid-afternoon, and market wrap-up reports.