WTI crude oil:
April WTI lost 68 cents on volume of 1,785,814 contracts. Total open interest increased by an impressive 45,135 contracts, which relative to volume is average, but is a large number nonetheless, especially since volume traded was extremely heavy and was the highest since March 9 when the April contract lost $1.00 on exchange record-setting volume of 2,040,308 contracts. The April contract lost 31,242 of open interest, which means there were sufficient open interest increases in the forward months to offset the decline in April and increase total open interest by an average amount.
The open interest increase in yesterday’s trading was nearly twice that of March 13 when the April contract lost 9 cents and total open interest increased by 24,373. As a matter of fact since March 8 when the decline in crude began, the open interest increase on March 14 is the largest seen in the period. The fact that total open interest increased by a substantial amount at the bottom of the 3 1/2 month trading range indicates to us that WTI is more than overdue for a counter trend rally.
Ever since the April contract generated short and intermediate term sell signals on March 8, the market has headed straight down. Yesterday may have represented the Johnny-come-lately crowd getting bearish at the low end of the trading range, which is typical. What we are not seeing, and this was pointed out in yesterday’s research note that total open interest is declining with prices. This is concerning because according to the COT report released last Friday managed money was long by ratio of 6.84:1 as of March 7, the date of the tabulation of the report. This crowd is hanging on by their finger nails and many are showing losses. This will stymie rallies.
As this report is being compiled on March 15, the April contract is having one of its rare rally days, trading up 81 cents on relatively low volume. At this juncture, we see no reason to be involved in the crude oil market, but clients should keep an eye on gasoline because we think this could be the big mover when crude oil turns around.
The Energy Information Administration announced that U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) decreased by 0.2 million barrels from the previous week. At 528.2 million barrels, U.S. crude oil inventories are above the upper limit of the average range for this time of year. Total motor gasoline inventories decreased by 3.1 million barrels last week, but are in the upper half of the average range. Both finished gasoline inventories and blending components inventories decreased last week. Distillate fuel inventories decreased by 4.2 million barrels last week but are near the upper limit of the average range for this time of year. Propane/propylene inventories fell 0.8 million barrels last week but are in the middle of the average range. Total commercial petroleum inventories decreased by 7.8 million barrels last week.
April natural gas lost 10.5 cents on surprisingly light volume of 398,824 contracts. Volume was nearly the same as March 13 when the April contract gained 3.5 cents on volume of 398,787 and total open interest increased by 9,666. On March 14, market participants were liquidating en masse and total open interest declined by 11,741 contracts, which relative to volume is approximately 15% above average. The April contract accounted for a loss of 7,917 of open interest.
As this report is being compiled on March 15, the April contract is trading 3.2 cents above yesterday’s close and has made a daily low of 2.923 which is a fraction below yesterday’s print of 2.927. On March 10, OIA announced that April and May natural gas generated short term buy signals, but remain intermediate term sell signals.
Yesterday, was the first pullback since the generation of the buy signal and we recommend standing aside for another day before considering bullish positions. Tomorrow is the EIA storage report and this is always a major market mover. With the impact of the storm dissipating in the Northeast, we will see how natural gas trades when conditions are not so favorable for higher prices.
Silver: May New York silver will generate an intermediate term sell signal on March 15 provided the daily high remains below OIA’s he pivot point for March 15 of $17.038.
May New York silver lost 4.9 cents on volume of 54,835 contracts. Total open interest declined by 1,683 contracts, which relative to volume is approximately 15% above average. As this report is being compiled on March 15, the May contract is trading nearly unchanged on the day.
On March 7, May silver generated a short term sell signal. In an environment of higher interest rates, a scenario for sustainable higher precious metal prices does not seem to be in the cards. We advised clients to avoid the long side of silver and gold when they were trading at substantially higher prices and continue to recommend a sideline stance.