SENTIMENT SURFING

Prices may be finding some support from news that 100k bpd of crude oil output is still offline as a result of a pipeline explosion last week in Iraq. Repairs should be completed today.

The retreat of more than $4.00 since Thursday  puts crude oil in a considerably weaker technical posture. The marginal cooling of hostilities in Iraq, resulting in removing the immediacy of a threat to supply, has combined with rising concerns that demand will contract as a consequence of faltering economic activity.

The rising dollar is furthering significant downside momentum. Expectations for a further addition of as much as 2MM bbls in crude oil stockpiles have also added to those pressures. For the moment, participants seem to be focusing on the negatives and discounting the positives.

Ignoring the rallying equity markets, which seemed to enjoy renewed confidence from the strong demand for a $4 billion capital raising from Lehman Brothers as a sign that the worst of the eight-month-old credit crisis might be over, energy arkets seemed more influenced by ongoing pressure in physical commodity markets igniting some spillover selling.

End-of-quarter position adjustments may have also extracted cash from commodities to offset losses elsewhere. There is also a justifiable concern that crude oil stocks will see a hefty build up this spring due to refinery maintenance, reduced operating rates and poor profit margins.

So, today's report may be a critical test of the bull's resolve given that crude tested the waters below the critical bull/bear dividing line of $100/bbl.

The weak technical posture and recent Congressional scrutiny, make quicken the pace towards recent lows, unless there is some distinct reason to improve overall demand expectations.

J. Kilduff