Today, December 14, the Federal Reserve will release its decision to hike interest rates, which is expected to be increased by one quarter of a point. The conference will be the main attraction and we think this could be a sell the event type move, especially because the major indices are substantially overbought. We recommend a stand aside posture until the conclusion of the conference.
WTI crude oil:
January WTI crude oil advanced 15 cents on volume of 1,475,791 contracts. Total open interest increased by 37,232 contracts, which relative to volume is average. The January contract accounted for a loss of 34,332 of open interest. Based upon yesterday’s trading activity, it appears there was a battle between buyers and sellers and buyers were able to edge the market slightly higher by the close.
As this report is being compiled after the release of the EIA storage report, which showed that inventories decreased by 2.6 million barrels, the market is trading substantially lower, down $1.16 or -2.19%. Crude is in a corrective phase and we expect to see consolidation and then an attempt to take out the contract high of $54.51 made on December 12. We have no recommendation.
The Energy Information Administration announced that U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) decreased by 2.6 million barrels from the previous week. At 483.2 million barrels, U.S. crude oil inventories are near the upper limit of the average range for this time of year. Total motor gasoline inventories increased by 0.5 million barrels last week, and are well above the upper limit of the average range. Finished gasoline inventories decreased while blending components inventories increased last week. Distillate fuel inventories decreased by 0.8 million barrels last week but are above the upper limit of the average range for this time of year. Propane/propylene inventories fell 3.6 million barrels last week but are near the upper limit of the average range. Total commercial petroleum inventories decreased by 2.0 million barrels last week.
January natural gas lost 3.3 cents on volume of 488,878 contracts. Volume was the lowest since December 5 when the January contract gained 21.8 cents on volume of 495,938 contracts and total open interest increased by 18,178. On December 13, total open interest increased by 12,379 contracts, which relative to volume is average. The January contract accounted for a loss of 21,735, which means there were sufficient open interest increases in the forward months to offset the decline in January and increase total open interest substantially.
As this report is being compiled on December 14, the January contract is trading 6.3 cents above yesterday’s close on low volume and has made a daily low of $3.444, which is just fractionally below yesterday’s print of 3.448. As we have said previously, we expect the correction to extend down to the 20 day moving average of approximately 3.290. We have no recommendation at this juncture.
The March dollar index advanced 58 points on heavy volume of 55,300 contracts. Total open interest increased massively by 2,512 contracts, which relative to volume is approximately 75% above average meaning aggressive new buyers were entering the market and driving prices higher (101.195). The December contract, which expired expires shortly lost 10,147 of open interest and there were sufficient open interest increases in the forward months to offset the decline in December and increase total open interest.
Yesterday’s action was the most bullish that we’ve seen in several sessions. As this report is being compiled prior to the release of the decision by the Federal Reserve to raise interest rates, the dollar index is trading close to unchanged on the day. For the March contract to generate a short term sell signal, the high for the day must be below OIA’s key pivot point for December 14 of 100.530. For the rally to continue, the March contract must make a daily low above OIA’s pivot point for December 14 of 101.338. We recommend a stand aside posture in the dollar index and all currencies until the conclusion of the December 14 Federal Reserve conference.