WTI crude oil:
July WTI crude oil advanced 38 cents on heavy volume of 1,491,597 contracts. Volume was the strongest since June 8 when the July contract lost 8 cents on volume of 1,856,316 contracts and total open interest declined by 34,943. On June 13, total open interest declined by 5,251 contracts, which relative to volume is approximately 80% below average. The July contract lost a massive 81,221 of open interest and there was almost enough open interest increases in the forward months to offset the decline in July.
The COT report released last Friday revealed that managed money added 18,573 contracts to their long positions and added only 2,179 to their short positions. Commercial interests liquidated 11,249 of their long positions and also liquidated 1,864 of their short positions. As of the June 6 tabulation date, managed money was long WTI crude oil by a ratio of 2.89:1, up from the previous week of 2.77:1 and substantially above the ratio two weeks ago of 2.51 1.
As this report is being compiled on June 14, the July contract is trading sharply lower after the release of the EIA storage report, which ironically showed a decline in inventory of 1.7 million. However, it was the stock increase for gasoline that was likely the catalyst for the sharp downside move and gasoline inventories increased by 2.1 million barrels at a time when inventories usually decline as the summer driving season begins to kick into high gear.
On June 2, OIA announced that July WTI crude oil generated a short term sell signal and was at the time already on an intermediate term sell signal. Currently, the July contract is trading $1.71 lower -3.68% while gasoline is trading -4.01%, down 6.05 cents on heavy volume. The July contract has made a low of 44.54, which is the lowest price since May 5 when the July contract printed 44.13, a 3 months low. We have been advising clients to stand aside in the crude oil market.
From the June 7 note on WTI crude:
“The very minor increase of total open interest tells us that short-sellers were reluctant to enter new positions at the lower end of the trading range. Additionally, total open interest didn’t decline, which tells us that those holding long positions are digging in and refusing to liquidate even as prices have moved close to a one month low.”
“As this report is being compiled on June 8, the July contract is trading close to unchanged on the day, but has made another new low for the move of 45.20, which takes out yesterday’s print of 45.65. As we indicated in previous notes, the July contract is headed to a test of the May 5 low of 44.13.”
“On June 2, OIA announced that July WTI crude oil generated a short term sell signal and was already been on an intermediate term sell signal. Stand aside.”
The Energy information Administration announced that U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) decreased by 1.7 million barrels from the previous week. At 511.5 million barrels, U.S. crude oil inventories are in the upper half of the average range for this time of year. Total motor gasoline inventories increased by 2.1 million barrels last week, and are above the upper limit of the average range. Both finished gasoline inventories and blending components inventories increased last week. Distillate fuel inventories increased by 0.3 million barrels last week and are near the upper limit of the average range for this time of year. Propane/propylene inventories increased by 2.4 million barrels last week but are in the lower half of the average range. Total commercial petroleum inventories increased by 6.8 million barrels last week.
Live cattle: August 2017 live cattle will generate a short term sell signal on June 14. August live cattle remains on an intermediate term buy signal.
July corn advanced 3.75 cents on volume of 489,986 contracts. Volume was the weakest since June 6 when 462,190 contracts were traded and total open interest increased by a massive 17,433 contracts. On June 13, total open interest declined by 381 contracts. The July contract accounted for a loss of 24,992, which means there was almost enough open interest increases in the forward months to offset the decline in July, but not quite. As this report is being compiled on June 14, the July contract is trading 2.50 cents lower after making a daily high of 3.85, which is slightly above yesterday’s print of 3.83 3/4.
We are troubled by substantial drop off in volume on yesterday’s advance and the lack of a total open interest increase. Also of concern the dollar index is trading sharply lower on June 14, but this is not giving corn a bid. Undoubtedly, somewhat weaker ethanol prices are weighing on corn and currently the July contract is down 1.15%, but is trading above its 20 day moving average of 1.533.
As this report is being compiled on June 14, the July contract is trading 3.00 cents lower on the day and has made a daily low of 3.77, which is the lowest print since 3.76 1/4 made on June 12. Depending upon your risk tolerance, the exit for the July contract should be the June 12 low of 3.76 1/4, or the penetration of the 20 day moving average of 3.74 7/8.
In the research note on June 9, written on June 12, we recommended the initiation of bullish positions when corn was trading in our buying range of 3.75-3.78. Additionally, we advised that positions be liquidated upon the penetration of the 20 day moving average.
From the June 12 note on corn:
“Yesterday, in the report for June 9 written on June 12, we recommended that clients initiate bullish positions in corn because the July contract pulled back to our target for purchases (3.75-3.78). If you took this advice, the trade is now solidly profitable on June 13 with the July contract trading 5.75 above yesterday’s close and has made a daily high of 3.83 3/4. As we pointed out in yesterday’s note, our concern is the impact on the market after the results of the FOMC meeting are known, which will almost certainly raise interest rates.”
“It is possible the language in the announcement and discussion afterward could be far more hawkish than what is being priced in markets. If this is the case, the euro will finally correct and the dollar index would generate a short term buy signal. A strong dollar may adversely impact corn prices, and if you are concerned about this, we recommend using penetration of yesterday’s low of 3.76 1/4 as an exit point.”
Silver: On June 13, July and September 2017 New York silver generated short term sell signals. Both contracts remain on intermediate term sell signals.