Sunday, August 4, 2013

Technical Look At Crude Oil

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Over the last several weeks, WTI Crude Oil has made a major upward move, with the return of backwardation, which describes a futures forward curve in which the cost of crude for immediate delivery is higher than future deliveries. With improved infrastructure, crude is now flowing from Cushing and the production areas to coastline refineries where demand has remained strong to meet summer demand for gasoline at a time of slowing imports. This has led to the biggest monthly drop in US inventories in more than 30 years, according to the Energy Information Administration (EIA), explaining why the price of spot crude has risen relatively more than deferred during this time.

We saw the Brent-WTI spread collapse back to parity last week before bouncing again. The longer-term target of the spread is being determined by the cost of transporting oil by pipeline and rail from inland production and storage sites to coastline refineries, so on that basis we will expect Brent's premium over WTI to be maintained in the medium term.

Looking forward, refinery demand is set to peak over the next month, which could lead to a further reduction in US crude inventories. But with production still running at a high rate, the annual turnaround, when refineries shut down to prepare for the production of heating oil and other products, could be the turning point and inventories may begin to build again, resulting in some downside price pressure.

The latest Commitment of Traders (COT) report shows that large speculators have never been more bullish on crude oil and are holding an all-time high exposure to crude oil. The Commodity Futures Trading Commission (CFTC) COT reports holdings data for various energy contracts and most of them show large speculators are record long.

  WTI broke out of an Inverted Head & Shoulders and tested it's measured move to $109. I began to pullback last week to just under $103, reversing @ the 38.2% Fib level (Twitter post)  The 108.80 (109) level presents resistance, is it a near term 'Double Top' & will crude break below $103 support head toward $98 (breakout). Or, has crude set up a 'Bull Flag' pattern with a measure move towards $119?

Ron William, technical analyst at Investors Intelligence, takes a technical peek at WTI crude oil, and looks at the spread between it and Brent oil.

Anthony Grisanti believes oil is badly overdone. He's betting big that a selloff will come in short order, with CNBC's Jackie DeAngelis and the Futures Now Traders.

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