-- Posted Friday, 15 January 2010 | Digg This Article
| | Source: GoldSeek.com
GENERAL MARKET CONDITIONS/FUNDAMENTAL FACTOR
Yesterday all commodities consolidated with a firm bias. After this weeks spectacular recovery from the lows more and more day traders are buying commodities on dips. The global economic scenario is on the growth trajectory, interest rates will not be increased before the third quarter by the Federal Reserve or the European Central bank before the fourth quarter of 2010 which implies that liquidity will be high. There has been a direct correlation between liquidity and commodity prices over the past two years and this will continue in 2010.
CFTC unveils oil, gas limits
The top U.S. futures market regulator unveiled its long-awaited proposal to curb speculation in oil and gas markets on Thursday, setting position limits so high they would affect only a handful of the most massive players, to the relief of edgy traders.
In an effort to prevent excessive concentration in energy trading, the Commodity Futures Trading Commission (CFTC) issued proposals to cap the number of contracts a company can hold across exchanges. The limits were less stringent than expected and offered some exemptions for swaps dealers who hedge financial exposure.
For instance, the limit on crude oil would equate to a 98 million barrel position -- equal to more than a day's global consumption, or near $8 billion at current prices. This is five times the New York Mercantile Exchange's own loosely enforced cap, which may assuage fears that tough limits would cause an exodus of liquidity to overseas or unregulated markets.
In brief, the limit for holdings in all months would be set annually based on open interest at the sum of 10 percent of the first 25,000 contracts plus 2.5 percent of the remaining open interest. This would allow a regular annual adjustment to the limits rather than the fixed caps the CFTC applies to grain markets.
The CFTC said the limits, if implemented, would affect the 10 biggest position holders in all markets. Over the past two years, only 3 "unique owners" in the crude oil market and only one in the natural gas market would have been affected, according to Steve Sherrod, Acting Director of Surveillance at the CFTC.
The exchanges themselves will continue to allow exemptions for bone fide end-users, companies who need to hedge their physical positions. The CFTC will be responsible for granting "risk management" exemptions to swap dealers at a maximum of two times the otherwise applicable position limit.
But the commission said such players, the likes of Goldman and Morgan Stanley, would not be allowed to take on speculative positions that would exceed the exemptions. This limits their ability to make additional bets with their own money if they are already offsetting customers' positions.
However, as part of the Obama administration's push to overhaul financial markets, the CFTC must explain its softer approach to lawmakers who have clamored for regulatory action since oil prices surged to a record $147 a barrel in 2008.
"I am very disappointed that this proposal as currently written will not go into effect until March of 2011. We need to stop Wall Street from jacking up oil prices and we need to do it now," said Sanders, a high-profile voice on the left in Congress who is on a number of committees including Energy.
The CFTC itself did not provide a timetable.
The limits will apply to futures and options contracts of light, sweet crude oil, RBOB gasoline, No. 2 heating oil and Henry Hub natural gas futures traded on both the NYMEX, owned by the CME, and the IntercontinentalExchange.
Our View: The measures taken by the CFTC is nothing but mere fluorescent coloring of energy trades and reduce negative consumer sentiment on energy trades. The US economy needs over $2 billion a day to run its economy and if investment flows move away from US economy to other nations it may be able to meet its needs. As CFTC or any other exchange authorities will never do anything significant which will reduce foreign flows in the US economy. A sharp correction in crude oil from the current prices should be used as an opportunity to invest in the long term on fundamentals.
TECHNICAL VIEW
NYMEX CRUDE OIL (1ST CONTRACT)
Bearish below $80.38 with $78.20 and $75.31 as targets.
Bullish over $81.20 with $82.20 and $83.80 as targets.
Neutral Zone between $80.38 and $81.55
$76 is the key short term support and as long as $76 holds it will target $85+ in the short term. There will be a technical breakdown below $76 to 69.80.
MCX CRUDE OIL FEBRUARY
Rs.3530 is the key short term support and a daily close below Rs.3530 will result in Rs.3380 and Rs.3120. As long as Rs.3530 holds there is every possibility of Rs.3850 and Rs.4050.
DISCLOSURE: NO POSITIONS
Disclaimer: Any opinions as to the commentary, market information, and future direction of prices of specific currencies, metals and commodities reflect the views of the individual analyst, In no event shall Insignia Consultants or its employees have any liability for any losses incurred in connection with any decision made, action or inaction taken by any party in reliance upon the information provided in this material; or in any delays, inaccuracies, errors in, or omissions of Information. Nothing in this article is, or should be construed as, investment advice. Prepared By Chintan Karnani. Website www.insigniaconsultants.in
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-- Posted Friday, 15 January 2010 | Digg This Article | Source: GoldSeek.com
