Where we stand on crude oil

What a great move in crude oil yesterday. It was enough for us to cover our short positions and bank almost $10,000 a contract in profits.

Watch this video and see how we did it.
Here's the full AP story from yesterday.

(AP:NEW YORK) Oil prices soared over $4 a barrel Wednesday, halting a dramatic two-week slide after a surprise drop in U.S. gasoline supplies fed speculation that record fuel prices aren't keeping Americans off the roads.

But energy market analysts offered mixed views on whether prices would swing back toward record levels above $147 a barrel hit earlier this month or if Wednesday's big rally was just a temporary bump.

Light, sweet crude for September delivery jumped $4.58 cents to settle at $126.77 a barrel on the New York Mercantile Exchange, after earlier rising as high as $127.39. It was crude's biggest one-day rally since July 10, when prices ended $5.60 higher. Oil closed $2.54 lower on Tuesday at $122.19 a barrel.

The Energy Information Administration said in its weekly inventory report that U.S. gasoline supplies fell by 3.5 million barrels last week. Analysts surveyed by energy research firm Platts expected gas supplies to increase by 400,000 barrels. U.S. crude stockpiles also fell by 100,000 barrels last week, less than the 1.3 million barrels analysts had predicted.

The report gave some traders reasons to believe that crude's slide was overblown and that the drop in gas supplies mean prices have fallen enough to nudge Americans back onto the roads.

"It's stopping the bearish momentum that we've seen over the last few days," Phil Flynn, analyst at Alaron Trading Corp. in Chicago, said of the surprise decline in gas supplies.

But some analysts raised questions whether U.S. fuel demand was picking up. Tom Kloza, publisher and chief oil analyst of Oil Price Information Service in Wall, N.J., doubted that Americans are actually driving more, saying a seasonal bump in gas demand probably drew down supplies temporarily.

"It's nonsense to say that this proves that people are back to their old driving habits," Kloza said. "There just wasn't enough enthusiasm to push prices lower. "

Crude's jump was boosted by word that Israeli Prime Minister Ehud Olmert will quit his post in September, an announcement that raised doubts about the future of U.S.-backed Middle East peace efforts in the oil-producing region.

Also supporting prices was a report by Goldman Sachs, which affirmed its earlier forecast that crude will hit $149 a barrel by the end of the year.

The investment bank called weakness in U.S. energy demand "transient rather than permanent," saying the fundamentals of falling oil production and rising world energy consumption remain intact. Past forecasts for higher oil prices have caused jumps in prices as speculative buyers are drawn into the market.

Still, other analysts said oil's recovery doesn't mean prices are about to go higher again, but rather shows that traders saw a short-term buying opportunity after Tuesday's sell-off.

"I still expect to see further air being let out of this balloon," said Stephen Schork, an analyst and trader in Villanova, Pa.

He noted that U.S. demand for energy is falling across most sectors. Inventories of distillates, which include heating oil and diesel, rose by 2.4 million barrels, more than the 1.8 million barrels expected, according to the EIA report.

And Americans continue to cut back on their driving to cope with almost $4-a-gallon pump prices. The average price of a regular gas fell 1.5 cents on Wednesday to $3.926, according to auto club AAA, the Oil Prices Information Service and Wright Express.

"We clearly have demand destruction," Schork said.

Before Wednesday's rebound, crude prices had dropped in seven of the last 10 sessions, and are down about 14 percent from their peak above $147 a barrel earlier this month. Prices remain about 60 percent higher than at this time last year.

The dollar was stronger Wednesday against the euro, but the oil market seemed to be ignoring a trend that ordinarily would pressure prices. Investors buy commodities as a hedge against inflation and a weaker dollar but tend to sell when the American currency strengthens.

Oil also gained Tuesday's announcement from Royal Dutch Shell PLC that it may not be able to fulfill some oil export contracts after Nigerian militants sabotaged a pipeline in the Niger Delta.

Militant attacks on Nigerian oil facilities have trimmed nearly one quarter of the country's regular daily output. The strongest Nigerian militant group, the Movement for the Emancipation of the Niger Delta, said it sabotaged two pipelines early Monday in the southern oil-producing region.

In other Nymex trading, heating oil futures rose 5.08 cents to settle at $3.5203 a gallon while gasoline prices gained 12.74 cents to settle at $3.1351 a gallon. Natural gas futures rose 11.8 cents to settle at $9.248 per 1,000 cubic feet.

In London, September Brent crude rose $3.34 cents at $126.05 a barrel on the ICE Futures exchange.

9 thoughts on “Where we stand on crude oil

  1. I'm going to 1/2 agree with Alan here in that you need to take a look at the indicators, most of which are bearish on the daily charts, but still quite positive on the weekly charts.

    Check out http://www.recordpricebreakout.com/images/oil_daily.jpg. There are so many bearish indicators on this chart with only 1 level of support to go before a true trend reversal can be confirmed.

    The weekly chart is much more positve: http://www.recordpricebreakout.com/images/oil_weekly.jpg. If you follow the rules:
    1. use the weekly chart for trend
    2. use the daily chart for timing

    you will see that crude is still in a pretty strong uptrend. Unlike the daily chart there is no divergence between the PPO (or MACD) and the price. From the '07 low of 51.03 to the high of 147, our current price of 121.41 isn't even at the 38.2% retracement yet. Crude would have to trade under $100 for there to be any change in the long term trend.

    Based on the amount of support on the weekly chart, I'd say this is good buy opporunity for crude and oil stocks. If it gets below the 200 day EMA around 112.5, then we can start considering the possibility of a trend reversal, but not $.01 sooner in my opinion.


  2. Much "UScentric" thinking here. Global demand/supply essentially determines prices not minor changes in US demand. Global demand continues to increase faster than supply and threats to supply are ongoing. There will always be temporary drops in prices - buying oppotunities - but the overall trend is clear. We will see $145-150 oil again before you think (with the help of the US authorities who continue to adopt practices to trash the value of the USD).

  3. The point I think of the post is: Nobody can say for sure where oil is going so you have to use technical indicators to trade the market successfully.

  4. I think oil will hang around $ 100 - $ 120 at least thru the election in November. Long term the supply demand picture will be bullish.We had a similiar "unexpected drawdown" in gasoline stocks last month,and it turned out to be domestic refiners shipping finished products overseas where demand is still growing.

  5. Talk about reversals of demand destruction are silly. Price at the gas pump is still very high in America, with the initial drop in crude (from $147) not yet even being relected in the price at the pump. So there is absolutely no factor to cause Americans to go back to higher gas consumption -- and they will never do so -- demand destruction has become permanent (SUVs traded-in for smaller cars yields a permanent result of reduced demand). We will also soon be entering a period of reduced seasonal gasoline demand.

    There are NO tropical storms projected for the Gulf of Mexico now -- Crude Oil goes below $120 next week -- short here.


  6. Crude respected support at $120/barrel. Reversal below $126 would indicate another retracement to test the support level. Recovery above $128 is less likely — and would signal a sharp rally.

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