Morning Futures Roundup
Fundamentals Take A Back Seat As Oil Prices Hover Near $80
Oil prices remain resilient, hovering near $80 per barrel, despite less than stellar fundamentals. Some of the recent gains in Oil were attributed to a refinery workers’ strike in France, which sparked a run-up in Gasoline prices. Oddly, a refinery shutdown may actually be bearish for Oil prices vs. refined products, as Oil demand decreases due to the refinery shutdown.
In the U.S., low refinery margins have refineries operating at levels well below capacity, curbing Oil demand from actual users of the product. Despite lower refining output, U.S. gasoline supplies remain more than ample. Traders are looking for U.S. gasoline supplies to have increased by between 500,000 and 1 million barrels last week when the Energy Information Administration (EIA) releases their weekly energy stocks report. The increase is expected despite expectations of lower gasoline imports last week due to the strike in France. Crude Oil inventories are also expected to show an increase of nearly 2 million barrels. Not even a rising U.S. Dollar, especially vs. the Euro, could derail the recent up-move.
So what is behind Crude’s strength? Looking at the most recent commitment of traders report, we notice large non-commercial traders (traditionally commodity funds and large speculative accounts) increased their net long positions by nearly 19,000 contracts for the week ending February 16th. This increase was before the last upsurge to $80 in the April contract. These traders tend to be more technical or trend-following in nature, and will add to winning long positions as prices move higher.
Non-reportable positions (small speculators) decreased last week, as small traders continued to abandon their net-short positions as oil prices rose. So it appears that technical considerations, not fundamentals, are in vogue in the Oil markets lately, and until proven incorrect, large speculators will want to continue to add to their long positions as long as the up-trend remains in place and their statement balances increase.
Looking at the daily chart for April Crude Oil, we notice a "Doji" appeared on the daily chart, marking what appears to be a top in the latest up-move. This candlestick chart indicator can be a sign that the current trend has run its course, as the market has entered a period of equilibrium where neither bulls nor bears have control. Although prices remain above both the 20 and 100-day moving averages, yesterday ’s sell-off did take prices below the 100-day MA , which may spark long liquidation selling should we close below this widely-watched technical indicator.
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The 14-day RSI has turned lower, moving to a more neutral reading of 55.59. Monday’s high of 80.78 appears to be near-term resistance for the April contract, with major resistance seen at the January 11th high of 84.96. Near-term support is seen at the 20-day moving average, currently near the 75.80 area, with major support seen at the February 5th low of 69.80.
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