When I last wrote to you two weeks ago, I noted that the majority of the commodity markets that we follow were entering into a consolidation phase, with the possibility of bullish action to come.
Well, we were right on most of those market, but some have stubbornly continued their bearish slide.
‘Route 66’ for oil
When oil prices rocketed to $147 in July, you’d have been committed for suggesting that the price would dip back down to the $50 per barrel level – a 66% slump.
But the big news is that oil has wiggled its way under the $50 a barrel mark – a price we haven’t seen on a front-month futures contract since May 2005.
The current futures contract (January 2009) hit a low price of $48.25 a barrel on November 21. In these tough economic times, the lower price of oil provides a much-needed bright spot for consumers, as the national average price per gallon of gasoline is around $1.82.
For the moment, crude oil is still trading in tandem with the stock market in that it moves higher when stocks go up (as it did for part of last week), and moves lower when stocks decline.
The OPEC oil cartel held an informal meeting this weekend, where the ministers opted to hold off on production cuts until their formal meeting later this month. The cartel believes the ideal price of oil should be around $75 a barrel, as that would greatly help their economies.
We’ll see what kind of power the cartel still wields in these markets, but unless it makes dramatic cuts, it looks like the price of oil is at the mercy of normal market forces.
Natural gas at $5 = buy
We mentioned last time that the natural gas futures had hit a level just above the $6.000/mmbtu area – a level we haven’t seen since February 2005.
Since then, the price is still waffling around those lows, but hasn’t traded below them. Right now, we’re still above the $6.600 per mmbtu level, as the commodity continues to search for some direction.
We still believe that if natural gas slips to the low $5.000 per mmbtu range, it could prove to be a great buying opportunity. Hopefully, we’ll get that chance again over the next few weeks or months, but the winter season should influence the price.
December dip for the metals
Not a good start to December for gold and silver.
Having enjoyed some bullish action last week – and looking set to finally turn the corner and start the next upward run – both metals hit a brick wall today, and have been pounded back down to almost the same levels from where they began the move last week.
From a $90 per ounce climb for gold and $1.50 per ounce rise for silver, gold has handed back about $45, while silver had shed $1.10.
It seems traders are only willing to hold onto gains for a very short period of time, as they’re never sure when more bad news will hit the newswires. Still, we still believe the metals can regain the bullish momentum, but it might not happen until after the holidays.
Close to a major buying opportunity on cotton
As for the other markets, our last edition focused on the cotton market, since it was getting very close to long-term support levels.
The lowest price for cotton came in 2001 when the futures contracts tagged the area of $.28/pound. This was based on information spanning back to 1979.
On November 20, the current front-month cotton futures contract (March 2009) dipped under the $.40 per pound level and has since climbed to its current level of $.47 per pound.
We’d like to see if it will hold here, but if cotton decides to move lower again, keep the $.25 to $.30 per pound area in sight as a potential huge buying opportunity.
• This article was written by Lee Lowell for the Smart Profits Report and was first published on Monday, 1 December, 2008