Globally off balance and no, I am not talking about Mahmoud Ahamadineajad, though I could be. No, what I am talking about is a perceived imbalance in the strength of the US economic recovery and the perceived strength of the recovery in the rest of the world. Yesterday the global commodity markets were knocked for a loop when it was reported that the Chicago Purchasing Manager report came out a lot worse than expected and that the ADP jobs report is still showing labor weakness. What made matters worse is it came out after stronger than expected economic readings in the UK, Germany, Australia, New Zealand and good readings in Japan and China. This raised concerns that the US is lagging the rest of the world is in a rebound phase and may force the US to be kept on the stimulus lifeline longer than some of the others. This imbalance on the last day of the quarter helped smash the dollar and sent money scrambling to find a place to profit or at the very least seek cover. It is obvious that today’s economic data, especially today’s ISM Manufacturing number, should be determining the next big move in petroleum.

Sure there were other factors. Some pointed to a drop in gasoline supply as reported by the Department of Energy and some pointed to concerns over the upcoming nuclear talks with Iran and the five permanent members of the United Nations Security Council. Yet it my mind, it was the dollar and the end of the quarter that caused the majority of the move.

The market was blindsided by the Chicago PMI which was suppose to show manufacturing in the area expanding  to above 50% but instead saw it contract with a reading of 46.1%. It did not help that before that, the ADP manufacturing number showed the US lost 254,000 jobs which was 54,000 more jobs lost than expected. That came after a report that showed US consumer confidence sinking, adding to the negative dollar mood. This pounded the dollar that was already weakened by Japanese exporters selling the dollar and repatriating into the yen due to end of quarter positioning. We also had data out of China that showed that manufacturing actually continued to expand in September with their purchasing Managers Index coming in at an expansive 55.0.

Yet this dollar drop did not go unnoticed by global leaders. In fact at the G7 in Istanbul this weekend it will be a major point of discussion. This was confirmed by the EU’s Economic and Monetary Affairs Commissioner Joaquin Almunia said strength in the euro would be a topic of discussion and whether or not 2011 would be the right time to withdraw fiscal stimulus. Is it possible that we could see intervention in the dollar/euro soon?

Meanwhile we will have to keep an eye on the Iran nuke talks just in case. The UN Security Council is now confronting Iran in Geneva with tough talk on their nuclear program the talks I guess started something like “liar, liar, and pants on fire”.  The talks will be the first bilateral talks between the US and Iran in ten years. Will Iran storm out or will they buy time. Does the Iran respect the UN? Does Russia and China want to support sanctions? Can Mahmoud Ahamadineajad find love and happiness in a world that just does not understand him? Stay tuned to this continuing saga as Iran twists and turns.

Are as far as inventories go, well I do not think they were really all that bullish. The DOE reported that crude oil inventories rose more than expected coming in at 2.8 million barrels from the previous week. At 338.4 million barrels, U.S. crude oil inventories are above the upper boundary of the average range for this time of year. Oh yes gas supplies fell by 1.6 million causing some excitement. Demand did rise due to falling pump prices but supplies are still above the upper limit of the average range. Distillate fuel inventories increased by 0.3 million barrels, and are above the upper boundary of the average range for this time of year. Natural gas injection should come in at 60 bcf’s. 

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We're short November crude from apprx 6850 - stop 7178.

We're short November heating oil from apprx 17800 - stop 18000.

Sell November RBOB at 16950 - stop 17200.

Sell November natural gas at 499 - stop 510.