COMMODITIES STILL IN VOGUE

Since the start of the year, rapidly shifting sentiment and a rise of speculative participation has described the market's volatility. According tot a report by Citi, investments in commodities rose by $40 billion in Q1, bringing total investment in the sector to as much as $400 billion.

Due to the weightings of various of the commodity indicies, a considerable portion must have certainly been channeled into the energy markets. The herd mentality of investing in hard assets as a buffer against rising inflation and a weaker dollar continues apace.

Yesterday, it was concern over tight global product supplies, which provided a strong lift to crude oil. News that Sunoco Marcus Hook refinery suffered a fire, yesterday, also confirms suspicions that were in the market. Expectation that the Federal Reserve will cut interest rates again seems to have improved the macroeconomic outlook.

The decline in product stocks and expectations that they will be replenished must also be working a positive influence on crude prices. But momentum can't last forever. The focus will inevitably shift back to the demand component.

Evidence seems to be mounting the the US economic growth is, at the very least, halted. It appears more and more that the Euro-zone will soon follow. China and India alone can not fuel energy demand growth forever, given their export driven industries.

For the moment, though, global refining constraints, refinery glitches, and spring maintenance should keep refined product supplies tight. Crude oil may also find support from rising geopolitical tensions with Iran and OPEC's unwillingness to increase supply.

There is some speculation that testimony General Petraeus this week may raise the specter of military action against Iran, once again. The falling dollar has also underpinned crude's rise but it should be noted that the currency looks to have stabilized.

Yesterday's bar on the crude oil continuation charts ended the series of declining highs, and today's price action has bested yesterday's high only marginally.           

J. Kilduff