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Friday, May 06, 2011 3:51 PM

Crude Heads for Biggest Weekly Drop Ever; Silver Biggest Weekly Drop Since 1980

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A number of commodities remain under pressure with corn, crude, and silver lower. Gold bucked the trend, up $10, as oil and silver suffered record drops.

Reuters reports Oil heads for biggest weekly loss on record

Oil erased early gains and turned negative in late afternoon trade as the dollar rose, extending Thursday's shock-inducing collapse, when Brent fell as much as $12, a record, in a furious, high-volume session that saw waves of selling as key technical levels were broken.

Selling pressure on oil and other commodities came on several fronts this week, with investors weighing factors from the death of Osama bin Laden to the impact of higher fuel and commodity costs on the economies of consumer nations to monetary policy in major economies.

Brent crude fell $1.37 to $109.43 a barrel by 2:56 p.m. EDT in heavy trade, with volumes twice the 30-day moving average. The contract was down $16.25 a barrel for the week, on track for its largest weekly decline ever.

U.S. crude futures settled down $2.62 at $97.18 a barrel, after trading at $102.38 following the release of supportive U.S. jobs data. U.S. crude ended down $16.75 for the week, the biggest weekly drop since the contract began trading in 1983.
West Texas Intermediate Daily Chart

click on any chart for sharper image

West Texas Intermediate Weekly Chart

Brent Daily Chart

Brent Weekly Chart

Margin Hikes on Crude Denied

Today there were rumors of margin hikes on crude futures but those rumors have been denied. We'll see.

Technically both Brent and West Texas crude have solid bands of support $70-$82. Fundamentally, there is every reason to believe prices will see that level again.

For a discussion, please see Oil Consumption Demand Destruction vs. Speculative Futures Positions.

Those talking $200 crude can go back into hibernation for a while.

Silver has biggest weekly drop since 1980

MarketWatch reports Silver has biggest weekly drop since 1980
The thinly traded front-month silver contract had its worst week since late March, 1980. Silver for May delivery /quotes/comstock/21e!f1:si\k11 SIK11 -3.22% dropped 27% in the five-day period, its largest percent drop since that date. The most-active July contract /quotes/comstock/21e!f1:si\n11 SIN11 -2.55% also dropped 27% on the week. Repeat margin increases spurred a stampede out of the metal. July silver fell 2.6% to settle at $35.29 per ounce on Friday. The May contract ended at $35.28 an ounce. The week's losses have shaved silver yearly gains to 14%.
Silver Daily Chart

Silver Weekly Chart

Folly of Buy-the-Dip Mentality on Parabolic Spikes

Once again we have seen the folly buy-the-dip of corrections off parabolic spikes.

Technically there is a small bit of support for silver at the $30 level on the daily chart. From a weekly perspective silver looks vulnerable to give back the entire parabolic rise from the low $20's.

History suggests the entire move up in parabolic spikes will retrace. Then again, with currency debasement by all central banks it is hard to know just what to expect.

Finally, I would like to point out this is a seasonally unfavorable period for precious metals. Historically speaking August to January is a good time to own precious metals with other times more spotty. Another round of QE can easily change this in a flash.

Mike "Mish" Shedlock
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