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Oil Remains Lower After Yesterday's Sell-off 9.18.2012

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Benchmark crude closed at $96.62 a barrel, down $2.38 or -2.4%.  Oil had its biggest intraday swing since early June, hitting a low of $94.65 a barrel, after trading at a session high of $99.52 Monday morning, failing to break through the $100 key technical level. 

The drop in U.S. crude was not as deep as the sell-off in Brent crude oil, which sank from $115.20 a barrel at 1:52 p.m. to $111.60 just 180 seconds later as trading volumes spiked despite the usually quiet Rosh Hashanah holiday.  Brent crude settled down $2.87, or -2.5%, to $113.79 a barrel.  Energy prices had spent the majority of the session trading marginally higher, with support from geopolitical tensions from around the world. 

There is speculation among traders that a potential ‘fat-finger’ trade is responsible for the selling as prices rapidly fell more than $4 in just 20 minutes.  There are also rumors of a strategic oil-reserve release.  These rumors most likely derived from a report done by Reuters on the Obama administration considering a release much larger than the 30 million barrels from last year.  However, the White House has denied these rumors with an official stating, “all options remain on the table, but we have nothing to announce at this time.”

Some analysts simply suggested the price of oil had gotten too high given continued weakness in the global economy, and it’s due for a correction.

Energy traders have enjoyed solid gains in the month of August with Crude-oil prices on the NYMEX up 8.7% from Aug. 1, and Brent crude gaining 7.7% over that period.  Oil recently traded to a high above $100 on Friday partly on concerns that the tension in roiling parts of the Middle East and North Africa could trigger supply disruptions.  Enthusiasm in the oil markets may soon fade however, due to an increasing negative outlook on global demand and high inventory levels.

Perhaps the euphoria over the Fed has worn off.

Crude spent much of the European session in the red, with the October contract off 52 cents, or -0.5%, to $96.10 a barrel. 

Ciro J. Lama is currently an undergraduate studying Finance at the Zicklin School of Business – Baruch College

Twitter: @TraderCantalino

Website: CantalinoAssetManagement.com

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Market Recap 8.31.2012

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Metals and energy rallied on Bernanke’s announcement that though no action will be taken now, the Fed will be ready to act should economic conditions worsen.  His comments are reminiscent of remarks he made in 2010 from Jackson Hole where he strongly hinted at the possibility of QE2.  Crude moved up $1.73 closing at $96.35.  Natural gas rallied nearly 2% closing at $2.801.  Gold surged higher closing up $36.60 closing at 1691.40.  Silver moved up 4.18% closing at 31.72.

Volatility was down today with the VIX falling a little over two percent closing at 17.47.    

The story of the day was the Bernanke speech.  Although he made no explicit statement about what action they would take if the economy deteriorates, the consensus is that it will almost certainly be another round of asset purchasing.  Markets rallied after the implementation of the first two rounds of easing but markets are concerned over the effectiveness of further easing.  Analysts expect that there the likelihood of easing is now very high and that we won’t hear another announcement of significance until around the election. 

James Ramelli University of Illinois graduate in finance Email: james@keeneonthemarket.com, Follow @Jim_KOTM

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September Seasonal Commodity Statistics

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Copper prices start to fall as the construction season ends and typically remain on a downtrend through December. Silver on the other hand typically starts to rally in September as demand rises. Jewelers start to buy silver in preparation for the holiday season. Also, farmers in India are known to buy precious metals after their harvest which ends through september.

This year Soybeans and grains are very strong due to drought conditions across large parts of the United States. Historically, soybeans are in a weak period during September, reaching their seasonal lows in October when the harvest is over. Corn is typically in a downtrend, although a frost scare can cause price spikes.

Meat prices, such as live cattle tend to rise as the demand for cattle rises in the Fall. Typically people eat more meat as temperatures cool off. Government programs such as school lunches also increase demand as school is back in session.

In the past 12 years, the Euro has rallied 11 times from Labor Day through the end of the month. I am not sure if this year will go with the historical trend, however a Euro rally before the election could be expected. European uncertainties may become more apparent in the next few months during the U.S. election season.

David Cornes holds a degree in economics from the University of Montana.

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