Crude Volatility Continues As Swine Flu Pushes Prices Lower

The extreme volatility in crude continues.  Just when you thought the crude futures had gained some positive momentum, they reverse course with a passion, smacking bulls in the face.  The crude futures have crashed below our 2^nd tier downtrend line and the highly psychological $50/bbl.  Crude bowed to our 1^st tier uptrend line in the process, and is making investors question which trend is truly in control.  The negative performance of crude comes in reaction to the Swine Flu.

The outbreak of the Swine Flu will likely hit international travel, taking a large bite out of the airlines’ consumption of crude.  With weekly crude inventories missing sharply to the upside the past two weeks, the Swine Flu only saturates crude’s aggregate supply, sending price sharply lower.  To make matter worse, the present performance of crude could be pointing at a significant decline in U.S. equities.  If the S&P futures were to crash beneath our 2^nd tier downtrend line, the selloff in crude could pick up from here due to their tight positive correlation.

Negative performance in U.S. corporations hinders the demand side’s recovery.  Coupled with the supply shocks taking place, it is difficult to be positive on crude.  On a lighter note, crude futures have managed to recover above April lows, keeping a glimmer of hope alive for the uptrend.

Fundamentally, we find supports of $48.78/bbl, $48.33/bbl, $47.86/bbl, $47.53/bbl, and $46.79/bbl.  To the topside, we see resistances of $49.22/bbl, $49.66/bbl, $50.10/bbl, $50.44/bbl, and $51.02/bbl.  $50/bbl turns becomes a key psychological barrier again while $45/bbl serves as a psychological cushion.  Crude is presently trading at $48.11/bbl.

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