[DAILY PETROSPECTIVE] May 20, 2010

Early Evening Market Review for Thursday

Oil prices dropped steeply again on Thursday, as the entire asset structure came
under selling pressure again. Traders were also talking about the abundance of
crude oil in Cushing, Oklahoma, and about the influence that could be having on
Thursday afternoon’s une crude oil contract expiration. As it worked out, June
crude was slightly weaker than deferred months, but the expiration occurred
within fairly normal parameters – if the recent weakness can be considered
normal.
Equities sold off sharply as well, yesterday, in what was being described as a
general flight from risk. And, in a sign that the exodus from asset classes was
planting even deeper roots, it spread into the precious metals, pulling down gold
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quotes along with those for platinum, palladium and silver.

The US dollar was lower on Thursday, but it may have been the only part of the risk-complex to have acted
differently than the others. Many observers proclaimed Thursday’s activity as a mass exodus from risk, and
the decline in oil, metals and equities prices would seem to bear that out. There was a time, for a few trading
days, when gold seemed to be above ou outside the wholesale liquidation of risk assets. That changed this
week. The euro, which rallied Thursday, (vs the US dollar) was the one asset to escape from the selling that
gripped so many other markets.
The DJIA was under selling pressure all day ong, and it is now closing in on the low reached during the “Flash
Crash.” It is very likely to test and possibly even break that support level. The decline in equities is now raising
questions about the overall economy, and observers are already alking about the growing possibility of there
being a “double-dip” in the economy, now. The DJIA ended down 376.36 points to 10,068.01 on Thursday.
Looking at the much bigger picture, it now seems that the
advances in equities and in commodities, most notably oil, were
EIA Report
really corrective rallies from the lows touched in late 2008 and Cons Reg East up 34 bcf
early 2009. Crude oil prices never made it back over their Cons Reg West up 15
retracement levels (of the decline from $147 to $32.70). The Producing Reg up 27
retracement zone started at $89.98, and the inability of oil Total Lower 48 up 76 bcf
prices to break above that level was a sign that it could not even
make it to a 50% retracement. It could have rallied to $103.50,
which would have been a 61.8% or Fibonacci rally, without necessarily changing the greater trend lower.
This collapse came without much warning in the oil markets. Heating oil and gasoline prices had broken out
of consolidations to the upside as we started early May. And, it looked like crude oil prices were going to try to
break their high at $87.09 and start another leg higher. They, in fact, only reached $87.15 before turning back
down in this massive departure from risk. The fundamentals had never really been bullish in any way,
especially on thesupply side, but demand was – and has continued – rising. It looked like the long-cited
connection between a recovering economy and stronger oil demand might just be coming true – just as
investors started to react to troubles with Greece, which quickly spread everywhere else.
Now, there are signs that the economy may not be as strong as initially believed. Thursday’s employment
figure was disappointing, and more and more observers are talking about a second dip, now.

Crude Oil Daily Technical Chart

*Note: Full report to be released tomorrow morning*

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