Great Graphic: The CRB and Oil

Commodities are very much the center of attention in the financial markets.  The first Great Graphic, created on Bloomberg,  is the CRB index.   Through last Friday (March 7) it had rallied 13.5% since January 9.   

It gapped higher on March 3and gapped lower earlier today, leaving a bearish island top in it wake.   Technical indicators like the RSI and MACDs have turned lower.  The gap extends from yesterday's low (304.75) to today's high (303.72).  Completing the gap and moving above it would negate this bearish views.   In late morning activity, there was an attempt to close the gap but it was rebuffed and the CRB returned to the middle of its range.  We suspect is break away gap, meaning that it is unlikely to be filled in the near-term. 

The CRB index also gapped higher on February 19.  This gap has not been completed.  In can be found between 298.55 and 299.29.   A move to this area will be the first bearish objective.  The next one is 294.50  We suspect there may be potential toward 290. 

The lower chart, also from Bloomberg is a chart of the May US crude oil futures contract.  The rally was not as impressive as the one in the CRB.   It did not gap lower and there is not island gap, but the technical condition appears almost as bearish.  The RSI and MACDs are trending lower.   

It closed yesterday at the psychologically and technically important $100 a barrel level, but follow through selling today has seen it loss another 2%.  It has moved toward the 61.8% of the rally off the  the early-January though early March high (found near $96.60).  That rally has carried oil up a little more than 15%. 

Today's sell-off may have been aggravated by conspiracy theories sparked by the unexpected announcement by the US Department of Energy.  It said it would sell up to 5 mln barrels of crude oil from its strategic reserves as a test of its systems.  It is the first sale since 1990 specifically for test purposes.  It will off sour crude and bids are due March 14.  

The test apparently has been subject of internal discussion for some time and was timed to be the most helpful for refineries in term of their maintenance schedule.  The 5 mln barrels is roughly equivalent to the US daily import of crude oil and about 25% of the US daily consumption. 

Many observers initially linked the release of the strategic reserves to confrontation with Russia over Ukraine and Crimea.    Yet, 5 mln barrels is a drop in the bucket, so to speak and  it is not clear, in any event, how much the announcement weighed on prices, which were already moving lower before announcement.   If the US were really trying to depress oil prices, the amount would have been bigger and, more than likely, it would have tried coordinating with Europe as was the case when the last time the reserves were tapped.  In 2011, in response to the civil war in Libya, in coordination with Europe, the US sold 30 mln barrels of oil from its reserves. 

At the present, none of the major currencies, including some crosses, are particularly closely tied to the CRB in general or oil prices in particular.   Sterling against the yen may be about the best (highest correlation with oil) and that is only about 0.28 correlated ( 60 day percentage change basis)  We have looked at a number of emerging market currencies and the results were similar results.