Crude oil futures are likely to gyrate in concert with speculation about how quickly the war in Iraq will end. But despite the potential for continuing volatility, supplies of oil are showing up in the U.S. and abroad; that's a factor that should keep downside pressure on crude.

The weekly national inventory figures released by the American Petroleum Institute and the Department of Energy both came in higher than expected on Wednesday. This build in national supply can in large measure be attributed to OPEC keeping its promise to pump above-quota quantities of oil in the event of an invasion of Iraq.

Members of the petroleum-exporting cartel excluding Iraq increased output about 6% more in March than in February. The increased output from OPEC has eased concerns that oil distribution would be disrupted amid armed conflict in the Persian Gulf.

While Saudi Arabia and Kuwait were responsible for most of the increase, Venezuela cranked up its output by a surprisingly large amount. Venezuelan oil plays a key role in domestic prices because of its proximity to the U.S., and because Venezuela provides nearly as much oil to the U.S. as Saudi Arabia. (

Click here to see statistics complied by Tony Crescenzi on the top suppliers of oil to the U.S.)

Russia's 11% increase in production from the previous year is also enhancing global crude oil supplies. Domestic and global stockpiles are rebounding at the same time that record gasoline prices should curb demand for crude oil and its products.

Nobody has missed the fact that crude oil prices already corrected radically in anticipation of the Iraq invasion. Technically, the downdraft left a definitive price overbalance that's been one of the best indicators that the rally had come to an end. Now notice how, on the rebound, May

crude

(CLK3:NYMEX) failed to fill the "preinvasion" gap left on March 18. Crude also held below retracement resistance, further implying that the trade favors the downside. Intraday resistance resides at 29.30-29.35 and then at 29.65 for traders considering the short side.

Click here for information on the e-miNY energy futures. These are smaller electronic contracts that will permit speculators who are new to trading energy futures to participate with reduced risk.

Precious Armor

The flight-to-safety bid in gold has been seriously eroded, but there remains a net long speculative position of about 60,000 contracts. This implies that June

gold

(GCM3:COMEX) could easily test the July 2002 low at 302.0.

The speculative long position in May

silver

(SIK3:COMEX) isn't as severe as gold's. Silver also actually managed to gain Thursday while gold took a drubbing. This divergence suggests that support in silver in the 4.350 area will be difficult to crack.

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The SARS virus that has caused several deaths and made thousands sick in Asia is a negative for the region's economy because of the impact it's having on business activity. A contracting economy correlates with reduced copper demand. The SARS scenario bolsters the view that

fissures in May

copper

(HGK3:COMEX) will result in this market achieving the projected

measured move down to 0.7000.

Softs

May

coffee's

(KCK3:NYBOT) probe to a one-month high is indicative of short-covering prior to the market going on freeze watch beginning next month, the start of the Brazilian winter. Brazil, the world's top coffee producer, is also expected to see a major cutback -- as much as 40% -- in output from last year's bumper crop. Still, I expect this to be a trading market with participants fading the 62.10 level until the March 25 gap is filled. Support zones then reside at 59.60 and 59.00.

May

cocoa

(CCK3:NYBOT) triggered out of a pullup-from-a-low setup, a secondary downside pattern setup out of its

bearish pennant.

Marc Dupee is an independent trader and co-author of the book

The Best: Conversations With Top Traders. Dupee was formerly markets analyst and futures editor for TradingMarkets Financial Group. At time of publication, he held no positions in any securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. While he cannot provide investment advice or recommendations, he invites you to send your feedback to

Marc Dupee.

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