Crude Oil Reverses on Tanker Attack

Crude oil is up 3% this morning after two tankers off the coast of Iran were attacked, writes Bill Baruch President of  BlueLineFutures.com

E-mini S&P (ESM)

Yesterday’s close: Settled at 2881, down 6.00

Fundamentals: U.S benchmarks are in recovery mode and here’s the thing; the healthy pullback over the last 48 hours did absolutely nothing wrong. Yes, price action was surprisingly unenthusiastic about a soft read on CPI data, however, it did hold strong major three-star support intraday. Late last night, the tape dug lower but calls for fresh stimulus measures out of China and rising energy stocks due to a tanker attack helped sentiment turn a corner. China’s Vice Premier Liu He reiterated the latest narrative that China has many policy tools to combat slowing growth and asked for regulators to step-up measures. At the same time, this echoes China’s unwillingness to cede in trade talks. Crude oil is up 3% this morning after two tankers off the coast of Iran were attacked. While this international incident screams Iran and heightens geopolitical tensions, beleaguered energy stocks such as Exxon (XOM) and Chevron (CVX) are up about 1% and lifting the broader tape. All in all, you can see that there are two sides of the coin for each of those anecdotes; the ongoing trade war with China and escalating tensions with Iran. Which will the market focus on today? Just maybe it’s the Fed, yesterday’s CPI number and the now 86% probability they cut rates at their meeting July 31. 

Technicals: Major three-star support at 2871.50-2875.50 held perfectly through yesterday and the NQ pinged major three-star support at 7419.50-7445 overnight. With the contained pullback and a lower low through the last three sessions (including today), there is a beautifully constructive bull-flag pattern developing for the S&P. 

Crude Oil (CLN) 

Yesterday’s close: Settled at $51.14, down $2.13

Fundamentals: Crude oil is surging after two tankers in the Gulf of Oman, off the coast of Iran were attacked. This certainly escalates geopolitical tensions in the region and begins to paint a path of least resistance higher as traders plan of weekend. Another component lifting prices is the OPEC Monthly Report. Although they released a less rosy view of the energy landscape, lowering their demand forecast and calling for rising downside risks due to the trade war, they are attempting to corner themselves into extending the OPEC+ production pact at the meeting seemingly scheduled for early July. Yesterday’s EIA data was not as bearish as Tuesday’s private API survey and especially so given that estimated production ticked down by 100,000 barrels-per-day. The broader risk-environment was dull yesterday but ultimately, for whatever reason you want to provide (of the many and see S&P section), risk-sentiment has turned, and crude oil is acting as a leader. The IEA Monthly Report is due at 3:00 am CT tomorrow. 

Technicals: Yesterday, we said here and in the Midday Market Minute that although the tape is bearish, do not chase price action lower. Instead look for a pop to fade. We identified $53.05 to $53.26 as that level, however, given the shift in landscape, we would suggest not fading this rally for anything more than a quick trade. Yesterday’s close barely settled below our rare major four-star support before reversing sharply. We find this fundamental and technical shift overall favorable and would like to find a dip to buy. 

Gold (GCQ)

Yesterday’s close: Settled at $1,336.8, up 5.6

Fundamentals: The good news is that gold has held its ground very well. However, as we noted here yesterday, it is a bit of a disappointment to not see gold extend gains after CPI data was soft. Treasury markets are upbeat and the odds for a Fed cut at the July 31 meeting have risen to 86% (based on Fed fund futures) as of this morning. Still, the dollar remains a headwind for gold as it is the best house on a bad block and gold is priced in dollars. Both weekly Jobless Claims and Import/Export Price Index both came in worse than expectations this morning. Renewed geopolitical tensions in the Middle East should also keep a bid under the metal ahead of the weekend. Tomorrow will help define what has so far been as a strong week; Retail Sales and fresh June Michigan Consumer data are both due.

Technicals: Gold settled right near first key resistance yesterday in what has overall been a constructive recovery from Monday’s sharp reversal; major three-star support held beautifully. 

Bill Baruch provides technical levels on all markets throughout the week at  BlueLineFutures.com. 

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