Earlier in the month I pointed out that Saudi Arabia and Kuwait had turned up their spigots to help ensure that the world had ample supplies of crude oil during the Iraq invasion.

But now that the output valve is turned up to high, it might not be so easy to slow the flow of oil into the world market, a factor that could continue to depress prices.

Late last week, OPEC president Abdullah Hamad Al-Attiyah said that partly as a result of the exporting group's promise to keep output high during the conflict, there's a surplus of at least 2 million barrels a day in the market. He also said the oversupply could jump to 4 million barrels a day, especially if Nigeria and Iraq resume production.

Going back on agreements and contracts is hard once they've been struck. Tankers are leased, crude oil cargos are presold and distribution deals are set. Indeed, Saudi Arabia reassured buyers in the U.S. and Europe recently that shipments will remain at current levels through May. So, although U.S. oil inventories stand about 16% below normal for this time of year, imports are on their way to replenish depleted stocks, a factor that should keep pressure on prices.

And as long as the war in Iraq keeps making progress toward completion and Iraqi oil fields remain intact, the war premium previously priced into oil will continue to dissolve, another negative.

Hourly Bars Short

On the 60-minute bars, May

crude oil

(CLK3:NYMEX) is in a downtrend. On Friday, the contract halted at the 100% projection of the biggest upswing (B-C) since the beginning of the month. Holding below this level will signify that bearish symmetry remains intact. The 100% projection also corresponds with the 50% and 61.8% retracements of swing highs A and C, leaving a tight cluster of resistance to initiate short positions against, with defined risk.

Changes in Japan

Japan has a new organization, the Industrial Revitalization Corp., designated to clean up the volumes of bad loans blamed for preventing new investment and blocking growth. The world's second-largest economy also has a new Bank of Japan Governor, Toshihiko Fukui. It's still unclear how effective either will be in bringing about an economic recovery, and Tokyo stocks hit 20-year lows last week. The economic uncertainty surrounding the new changes enhances the odds that the head-and-shoulders pattern in the June

Japanese yen

(JYM3:CME) will propel the contract to a 52-week low.

The Best Rates

For months there has been

reason to buy Canadian dollars. Among the chief rationalization: Canada is the only major industrialized nation to raise interest rates so far this year. If the Bank of Canada raises rates 25 basis points at its meeting tomorrow, that will leave the nation's overnight rate 2% above the federal funds rate, a move sure to get the attention of institutional money. The June

Canadian dollar

(CDM3:CME) remains one of the strongest momentum markets of 2003.

Other Markets

May

TST Recommends

feeder cattle

(FCK3:CME) have multiple signs that they're ready to continue higher. First, you have the overbalance of the downtrend that lasted from Dec. 5 to March 11. The upswing culminated on April 4 with a potentially bearish tail top bar. But on the day immediately following the tail, feeders popped open above the close of the tail and finished at the highest level in two months. This is constructive price action that refutes the reversal tail.

Feeders then pulled back for three days and triggered Friday out of a five-day pullback-from-high setup. This market also has six laps and an expansion bar off the lows, giving it the critical mass required within a one-month time frame to qualify feeders as a nascent momentum contract.

July

corn

(CN3:CBOT) and May

coffee

(KCK3:NYBOT) are in pullback-from-high setups. Meanwhile, May

sugar

(SBK3:NYBOT) and

cocoa

(CCK3:NYBOT) continue breaking down.

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 was short cocoa, 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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