WTI crude oil:
February WTI crude oil lost $1.14 on volume of 1,325,787 contracts. Total open interest declined just 650 contracts. However, the February contract lost 44,241 of open interest, which means there was almost enough open interest increases in the forward months to offset the total decline in February. Yesterday’s action was bearish.
As this report is being compiled on January 11 after the release of the EIA storage report, which showed a storage build of 4.1 million barrels, remarkably the February contract is trading substantially higher, up $1.66 or +3.27% on heavy volume. This is an impressive performance considering the magnitude of the stock build. Consequently, the February contract will not generate a short term sell signal on January 11. Stand aside.
The Energy Information Administration announced that U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 4.1 million barrels from the previous week. At 483.1 million barrels, U.S. crude oil inventories are at the upper limit of the average range for this time of year. Total motor gasoline inventories increased by 5.0 million barrels last week, and are at the upper limit of the average range. Both finished gasoline inventories and blending components inventories increased last week. Distillate fuel inventories increased by 8.4 million barrels last week and are above the upper limit of the average range for this time of year. Propane/propylene inventories fell 4.5 million barrels last week but are in the upper half of the average range. Total commercial petroleum inventories increased by 13.4 million barrels last week.
February natural gas advanced strongly, up 17.5 cents on volume of 549,502 contracts. Volume was slightly above that of January 9 when the February contract lost 18.2 cents on volume of 513,136 contracts and total open interest declined by 12,573.
On January 10, total open interest declined by a massive 21,767 contracts, which relative to volume is approximately 40% above average. The February contract accounted for a loss of 18.566 of open interest, which indicates there was additional liquidation in the forward months as prices rocketed higher.
The action yesterday was typical of a market that has a precipitous decline and longs that have not liquidated on the way down use rallies as an opportunity to trim positions. We mentioned this in yesterday’s research note. As this report is being compiled on January 11, the February contract is trading approximately unchanged on the day. We recommend a stand aside posture in natural gas.
From the January 9 research note on natural gas:
“As this report is being compiled on January 10, February natural gas is trading 18.6 cents above yesterday’s close or +5.99%, which is the first major rally day seen during the past week. On January 4, OIA announced that February and March natural gas generated short and intermediate term sell signals. Based on the massive net long position of managed money, rallies will be stymied by longs holding losses looking to trim those losses as prices rise.”
Heating oil: On January 10, February and March 2017 New York heating oil generated short term sell signals. Both contracts remain on intermediate term buy signals.
Copper: March New York copper will generate a short term buy signal on January 11 and it remains on an intermediate term buy signal.
March copper advanced by a very strong 7.40 cents on heavy volume of 114,343 contracts. Total open interest exploded higher, up 6,468, which relative to volume is approximately 120% above average and March copper made a high of $2.6300, which is the highest print since 2.6450 made on December 14, 2016.
The economic news out of China has been positive and the Chinese PPI index is indicating robust growth. As we have pointed out in previous research notes on copper, it is volatile and the options market is nonexistent due to the lack of liquidity. Therefore, we recommend trading the copper ETF JJC, which tracks copper futures fairly well.
Silver: On January 10, March New York silver generated a short term buy signal, but remains on an intermediate term sell signal.
March silver advanced 16.5 cents on strong volume of 81,172 contracts. However, total open interest declined by 307 contracts, which relative to volume is approximately 85% below average. As this report is being compiled on January 11, the March contract is trading nearly unchanged on the day even though gold is trading $10.50 higher or +0.89%.
If you want to know the direction of precious metals just look at the dollar index. The dollar index was sharply higher in the early session on January 11 and now is sharply lower, which is why we are seeing a recovery in silver and an advance in gold. Because we think the dollar continues to advance, we cannot get bullish on precious metals.
Coffee: On January 10, March New York coffee generated a short term buy signal, but remains on an intermediate term sell signal.
March New York coffee advanced 3.50 cents on volume of 33,814 contracts. Total open interest declined by massive 2,445 contracts, which relative to volume is approximately 185% above average meaning liquidation was extremely heavy on yesterday’s moderate gain.
The coffee market has fallen precipitously during the past couple of months and the COT report released last Friday showed that managed money added 1,252 to their long positions and also added 5,072 to their short positions. Commercial interests added 3,311 to their long positions and liquidated 1,290 of their short positions. This left managed money long coffee by a ratio of 1.32:1, down from the previous week of 1.58:1 and the ratio two weeks ago of 2.04:1. We recommend a stand aside posture in coffee.