TURNING A SUPPLY EYE                                     

An outside day with a close over the previous day's puts bulls firmly in control. The drop to new lows in the dollar this week, and the surge of speculative buying leaves the door open to further gains.

Any corrections will probably be limited by fresh speculative buying. Fundamentals are obviously not the focus -- this week's bearish inventory report and poor economic data have been quickly shrugged off in favor of supply threats and investment buying.

In fact, the market seems to have become ultra sensitive to supply issues. News of a fire at a major UK gas terminal, damage to a major export pipeline in Ecuador, a rumor of more violence impacting Nigerian oil flows, which was later in the day, and even the arrival of the USS Cole off the coast of Lebanon, as a warning to Syria, were all siezed upon as rationales for buying.

The market paid little attention to a report yesterday that Nigerian oil exports were expected to rise in April, possibly because another private report showed total OPEC exports dropping by over 400,000 barrels per day out to March 15th.

Although US crude oil stocks have been rebuilding, the market is concerned that some OPEC members may constrict production during the weak demand period in Q2, and this outlook will only serve to heighten supply sensitivities.

While the extreme volatility may contribute to any subsequent corrective price break in crude oil, the ultimate conclusion to this rally does not seem immenent. The bulls seem to have a strong hold on market sentiment and price dips will probably attract new buying in the current environment.                       

J. Kilduff