THE PACIFIC COMMODITY LETTER
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360-289-9441(March 26, 2000) ENERGY COMPLEX: MONDAY'S OPEC MEETING WILL EFFECT THE MARKETS--BUT WHICH WAY?--May crude oil did correct upward by 71 cents on Friday, but the movement for the week was down by 1.06, quite different from the gains of its products. This is a bearish trend still at work; stochastics are bearish and very much oversold; RSI is not yet an issue. Direction and momentum indicators are mixed; down in the short term, but uncertain in the 18-day formula. 9- and 18-day moving averages show wide divergence and a clear "sell" signal. There is strong resistance at the 27.20 level, but we must respect the trading channel and directional call. Historic volatility has dropped from over 50 percent to 35%.
Fundamentally, a fire at Shell's Godorf refinery near Cologne, Germany supported prices Friday. They will continue production, but only at 50 percent capacity. Several reports from different parts of the globe by OPEC members did not form a consensus; uncertainty was the outcome; slightly supportive to prices Friday. Some important OPEC members did not believe a rise in production was justified at this time. (Iran, especially.) Monday's OPEC meeting will surely effect prices one way or the other.
UNLEADED GASOLINE--April unleaded gas has every reason to rally from here. It made its correction, its "tip of the hat" to Richardson and the OPEC members who preach moderation; but supplies are still low and driving demand has picked up. If it keeps to its upper trendline it should retreat and continue lower; it will need a breakout to escalate. After a drop of 444 points on Monday it has gained 46, 57, 189 and 298, a total of 590 points or 146 points net higher for the week. Long-term stochastics are bearish while the short- and intermediate-term are bullish; 9- and 18-day moving averages are crossed in the "sell" signal, but they are lagging indicators; momentum is bearish, but direction is bullish in all time frames. 9- and 18-day moving averages have moved to cross; they are barely in the "sell" position. This is a volatile market (about 40% historic volatility average over the past 9 days, though less than longer terms). Obviously a very difficult market to analyze and to trade. Of all the indicators, I'd have to respect the upper trendline and what appears to be a breach, Friday. I'll call for higher prices ahead and a trend change call to bullish.
HEATING OIL--April heating oil has a similar configuration to unleaded gasoline. It is the products which rose strongly on Friday as crude settled lower. April heating oil gained from 67.90 to 74.00 Monday to Friday. The close was high-fulcrum, 73.95 and a strong bullish signal for upward momentum. Stochastics are strongly bullish with wide divergence in the 9-day formula; the 14-day has just crossed. 9- and 18-day moving averages lag behind and are strongly bearish with wide divergence; direction is up; momentum is down in the short term. April heating oil has not yet breached its upper trend line, so the call is still bearish.
Please note how this will effect the heating oil/unleaded gas spread.
NATURAL GAS--May natural gas is in its "shoulder days," not that it is drawing a head and shoulders pattern, but that it is moving through winter demand to a low period before the summer air conditioner strength enters the picture. Is that a triple top at 2.900? Friday's high was 2.905, closing at 2.862. Can you play this as a neutral channel waiting for a breakout? Possibly. All these possibilities from which to choose. Stochastics are bullish everywhere; 9- and 18-day moving averages are just about to cross to bearish, but they are lagging. We are in an up cycle near strong resistance at the top of the trading channel: I'd look for a down cycle signal. Bullish, but a correction is in the wings.
Nothing in the fundamental news is expected to change the trading channel.
Martin B. Miller
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