There’s a saying that bull markets don’t end because of bad news, they end when prices fail to rally on good news.  That may be exactly what we’ve been witnessing over the past 24 hours as the first truly bullish DOE report in many weeks failed to sustain a push higher Thursday and led to another wave of heavy selling overnight.

The headline values had just about everything a bull could want in yesterday’s DOE report with large inventory draws across the board, and strong demand from both refiners and consumers.  Bears will note that crude oil production did increase sharply on the week, making up for the previous week’s storm-induced decline, and refinery output continued to outpace even the stronger estimates for domestic consumption.  The immediate reaction was about what you’d expect, all of the futures contracts hit fresh highs for the days and were well on their way to making Wednesday’s reversal irrelevant.  Then without warning, and without an obvious catalyst, prices fell apart about an hour before settlement, and although we ended the day with gains, the momentum had clearly been lost.

There are plenty of theories to explain this week’s selling – the late June rally was nothing more than short covering and position balancing ahead of quarter end, Russia doesn’t want to extend production cuts, Libyan & Nigerian production is growing and stock markets are getting nervous – and this note sums it up well in that crude oil is having a crisis of confidence.  Whatever it is, the bulls better get their stuff together soon or we look poised to head right back down to the June lows of $42 for WTI, $1.35 for ULSD and $1.41 for RBOB.  $44 held up overnight and gives us a good near-term pivot point to watch.

The June jobs report showed an increase of 222,000 jobs, and stable unemployment readings.  That report should be good enough for the FED to stick with their plan to raise rates again this year, and could be strong enough to start discussions of a more hawkish stance since unemployment is staying low and inflation is starting to creep up.

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Charts from the DOE Weekly status report.