Technically Speaking

Conflicting Signals in Oils

Todd Hultman
By  Todd Hultman , DTN Lead Analyst
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On Friday, June 10, August palm oil broke out of a consolidation pattern to the downside and ended below its 50-day average for only the second time in 2022 -- a bearish sign the market could be topping as exports are expected to increase (DTN ProphetX chart by Todd Hultman).

August prices of Malaysian palm oil fell 533 ringgits last week or over 8%, ending at 5,920 ringgits, the lowest close in nearly two months. It wasn't that long ago prices rallied on the news of an export ban, but the ban was short-lived. Last week, the Malaysian Palm Oil board said palm oil exports increased 27% from April to May and Indonesia's government said it was willing to allow more commercial firms to export palm oil. Technically, Friday's close in August palm oil broke out of a consolidation pattern and ended below its 50-day average for only the second time in 2022. The bearish breakout also left behind a lower high in late May, a possible sign this two-year bull trend has made a top. The next level of possible support to watch will be the 100-day average at 5,633 ringgits.


Seasonally, there is not much to say about heating oil this time of year. But since this is the futures contract for ultra-low sulfur diesel, this futures contract becomes a proxy for diesel prices in the summer. August heating oil gained over a dime a gallon last week and, even though prices were almost a nickel lower Friday, the close at $4.2582 a gallon was the first time an August contract ever finished the week above $4.00. Friday also witnessed the highest weekly close ever posted for an August contract of crude oil. With world oil production lacking and Russia's oil shunned by the West, it is difficult to see anything more than temporary seasonal relief from the market's bullish pressures anytime soon. Heating oil (diesel) prices are in the midst of an extremely strong uptrend but are also far above any technical levels of support and are vulnerable to a volatile correction.


Thanks to a 1.79-cent sell-off on Friday, August soybean oil finished the week at 78.46 cents, 1.06 cents lower on the week. Friday's selling in bean oil was influenced by a roughly 5% drop in palm oil prices and bearish breakout described above, while heating oil prices saw a rare day of lower trading, related to the stock market's bearish reaction to Friday's higher-than-expected report of consumer prices in May. Caught between a new bearish influence from palm oil and the robust bullishness of diesel prices, August soybean oil is still trending higher, above both the 50- and 100-day averages and not far from this year's high of 82.97 cents. Fundamentally, old-crop soybean supplies are proving tight in the U.S. this summer and the bullish influence from rising diesel prices should outweigh palm oil's new bearish influence, but soybean oil may encounter some bullish reluctance. For now, August soybean oil remains technically bullish with important support at 72.00 cents, the site of the 100-day average.


Comments above are for educational purposes only and are not meant as specific trade recommendations. The buying and selling of grain or grain futures or options involve substantial risk and are not suitable for everyone.

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