GASOLINE ALLEY

Today's pullback in pricBe from yesterday's sharp rally suggests  that participants may be having  secoHnd thoughts about pushing crude oil prices up too far, given the build up in stocks and lingering doubts about the US economy.

Yesterday's price action resulted from a combination of tighter product stocks and a weaker dollar, but average implied oil demand in the US over the first 13 weeks of the year is down more than 479k bpd compared to a year ago.

This morning's report by the Labor Department that 407k reported for their initial unemployment claims last week has also got to be considerably disconcerting, relative to energy demand, going forward.

Tomorrow's employment report, will give the market a key gauge on the economy. Euro zone economies are also slowing, but inflation remains persistently high, which will make it difficult for the ECB to cut rates, thereby relieving pressure on the dollar.

The jump in imports and the low refinery operating rate suggest crude oil stocks are likely to continue to build in the weeks ahead. However, the gasoline market seems to have become the complex leader and certainly the pull back in gasoline overnight, as well as the firmer dollar, is weighing on crude oil this morning.

Crude prices have been consolidating within a wide band over the last three weeks, which suggests the market is preparing to break out.  The downward pointing pennant formation that is forming implies that the early March lows are in the cross hairs.

The series of declining highs also suggests a probe lower, but the market has also not been able to maintain itself below $100. While rising crude oil stocks would usually be an impediment to higher prices, upward leadership from gasoline and a weak trending dollar are combining to overcome that resistance.

Otherwise, trading in crude oil will remain volatile until the market can get a better gauge on the economy and supply/demand conditions.              

J. Kilduff