Bloomberg Access:{OIAR<GO>}

Crude oil:

May WTI crude oil advanced 32 cents on volume of 1,200,302 contracts. Remarkably, total open interest increased only 989 contracts, a number that is essentially unchanged. The May contract lost 60,389 of open interest, which means there were barely enough open interest increases in the forward months to offset the decline in May and increase total open interest. Yesterday’s performance continues the abysmal price and open interest dynamic that has been at work for the previous several sessions.

From April 4, through April 11, the May contract has gained $3.16 while astoundingly, cumulative total open interest in this time frame declined by 18,688 contracts. This confirms that market participants are skeptical about the current rally and continue to liquidate positions as the market advances.

The rally is being fueled by short covering, not net new buying and, the COT report confirms this. As we pointed out in yesterday’s note, the most recent report showed that managed money liquidated 1,322 of their long positions and also liquidated 19,069 of their short positions. New buyers are going to have to step up to move crude oil prices higher.

The key point: If buyers have not shown up during the past several sessions and prices are trading at 30 day highs, when exactly are they going to join the party? As this report is being compiled on April 12, the May contract is trading 20 cents lower after making a daily high of 53.76, which is above yesterday’s print of 53.45.

As the EIA report revealed crude oil inventories declined by 2.2 million barrels and gasoline inventories declined by 3.0 million barrels. Yet crude oil prices are trading in a lackluster fashion and gasoline is trading 1.28 cents lower on the day. We are rethinking our ideas about being bullish gasoline and recommend the liquidation of the December 2018-December 2019 WTI crude oil bull spread.

Today, the Energy Information Administration announced that U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) decreased by 2.2 million barrels from the previous week. At 533.4 million barrels, U.S. crude oil inventories are near the upper limit of the average range for this time of year. Total motor gasoline inventories decreased by 3.0 million barrels last week, but are in the upper half of the average range. Both finished gasoline inventories and blending components inventories decreased last week. Distillate fuel inventories decreased by 2.2 million barrels last week but are in the upper half of the average range for this time of year. Propane/propylene inventories fell 1.2 million barrels last week and are in the lower half of the average range. Total commercial petroleum inventories decreased by 4.7 million barrels last week.

Gold:

June gold advanced $20.30 on strong volume of 299,512 contracts. Total open interest exploded higher, up 22,742 contracts, which relative to volume is approximately 210% above average, meaning that new buyers were rushing into the gold market and sending it to a high of 1277.40. As this report is being compiled on April 12, the June contract is trading 3.20 higher and has made a new high for the move of 1281.80.

On March 22, OIA announced that June New York gold generated a short term buy signal and at the time was already on an intermediate term buy signal. We have no recommendation at this juncture.

From the April 6 note on gold:

“Despite gold’s terrific performance for the past couple of weeks, the fact remains the longer-term moving average setup is bearish. For example, the 50 day moving average for the June contract is 1236.30 while the 100 day is 1210.80, but both are below the 200 day moving average of 1269.20.”

“In summary, gold has much more work to do at the higher end of its recent trading range to pull the 50 and 100 day moving averages above their 200 day moving average. With the dollar index likely to be on short and intermediate term buy signals next week, much will be gleaned about the underlying strength of gold when it trades in environment of a stronger dollar and rising interest rates.”

Yen:

The June Japanese yen advanced by a strong 104 pips on volume of 183,921 contracts. Total open interest increased by a healthy 5,777 contracts, which relative to volume is approximately 20% above average. As this report is being compiled on April 12, the June contract has made a high of .9168, which takes out the weekly high on the continuation chart of .9076 made the week of November 21, 2016 and is the highest print since .9380 made the week of November 14, 2016.

Remarkably though, as strong as the yen has been during the past couple of months, leverage funds remain short. According to the latest COT report, leverage funds liquidated 3,481 of their long positions and also liquidated 12,608 of their short positions. As of the April 4 tabulation date, leverage funds are short by a ratio of 1.05:1, down from the previous week of 1.28:1 and almost half the ratio two weeks ago of 2.07:1.

It is highly likely that leverage funds have moved to a net long position and this will be reflected in the upcoming COT report released this Friday. Once the “wrong way Corrigan’s” turn net long, the market advance is on borrowed time in our view. While we actively discourage anyone from shorting this market and the yen is not close to generating a short term sell signal, once it occurs, the yen could be a terrific trade on the short side. Continue to stand aside.

Canadian dollar: It looks increasingly likely that the June Canadian dollar is headed toward a short term buy signal and this will occur if the daily low is above OIA’s key pivot point for April 12 of 75.17.