Crude Confusion
Today's Idea
Crude Oil supply and demand fundamentals remain lackluster due to the large stockpile of petroleum in the US. However, outside factors support the Oil market. It seems that traders want to be bullish on Crude, even when there is no good reason to be bullish. Technically, the chart indicates indecision and traders await a breakout from the tight range seen this month. Some traders may wish to consider buying a February Mini Crude Oil futures contract at 90.50 on a stop, with a protective stop at 89.00 and an upside target of 93.00.
Fundamentals
Crude Oil futures have been trading in a tight range between 87.50 and 90.00 for the past two weeks, likely due to trader indecision. There are a number of supportive factors for the market, including China's decision not to raise its interest rate and lack of traction in the US Dollar lately. However, stockpiles of Crude Oil continue to rise in the US. Yesterday's EIA report showed inventories rising by 982,000 barrels to 35.9 million. The warmer weather expected for the remainder of the month in the Northeast could result in a build in Heating Oil inventories. Further inventory builds could result in Oil bulls exiting the market and waiting for a more opportune time to enter the market. Commodity demand as a whole has been very good of late, which could limit the downside potential of the Crude Oil market.
Technical Notes
Turning to the chart, we see the February futures contract consolidating between 87.50 and 90.00 after rising from the low 80's. Given the preceding move higher, the consolidation may have a bullish bias. Supporting this is the positive divergence between the momentum and RSI indicators. The bullish divergence suggests stronger prices in the near-term. A solid close above 90.00 would be seen as an upside breakout from consolidation, whereas the market falling below 87.50 could result in tests of support at 85.00 and 81.75.
Rob Kurzatkowski, Senior Commodity Analyst
