THROE BACK

Prices have remained mostly in the lower end of yesterday's range ahead of today's critical inventory report. When prices have trended lower, demand has been the theme; movement to the upside features supply.

With prices a bit lower today, yesterday's pronouncements by EIA that summer gasoline demand will shrink for the first time since 1991is probably making participants mindful of the spreading economic malaise.

Mastercard Advisors said that retail gasoline demand has dropped to its lowest levels since April, 2005 as average prices rose to a new high. Alan Greenspan's commentary yesterday must also be spreading some pessimism.

However, advances in Iran's nuclear program may be providing a small measure of support to crude oil. Also, as we expected, Iran featured prominently in Genral Petraeus’ appearance before the Senate Armed Services Committee, yesterday.

However, the market has shown incredible resiliency to bearish news. Even though today's report will probably show that crude stocks have swollen further, the report could potentially lift prices back above the March highs, if declines in product stocks come in much larger than expected.

A bearish reaction to the report  will need to carry lower than 108.00 to generate significant downward momentum. Yesterday's narrow range suggests that the upward bias is waning and will need some fresh impetus to keep it going.

Certainly, the influx of speculative capital should not be ignored, particularly the paradigmatic shift that it implies, but momentum alone will not fuel rising prices forever. Not only growing data, but a burgeoning list of economic celebrities are warning that we are in the ”throes” of a recession.

Even if global demand contracts only marginally, it will probably be sufficient to, at the very least, allow prices to drift to the $100 level.
         
M. Fitzpatrick