Consumers Overshadow Petroleum Supplies
Tuesday, August 30, 2011
Crude Oil supply-side fundamentals remain bearish; however, the rise in consumer spending could be a sign that the US economy may not be down and out after all. The US consumer has been a driver of not only the US economy, but has also had an impact on the global economy as well. Technically, the Crude Oil chart looks as though it may be at a positive turning point, but no technical confirmation has taken place. Some traders may be a bit more cautious than usual and choose to wait for a technical breakout before springing into action. Given the market's extremely high volatility, some traders may possibly wish to consider entering into an options trade. One example of such a trade would be a bull call spread, buying the October Crude Oil 90 call and selling the October 95 call after a double-top is confirmed.
Fundamentals
Crude Oil futures started off the week on a strong note, despite a less severe than expected Hurricane Irene. Crude Oil stockpiles are expected to jump this week as a result of the build-up to the storm and the sales of Oil from the strategic reserve being almost complete. Despite the bearish supply-side news, many traders are relatively upbeat about the positive consumer spending numbers. Positive economic data has been trickling through amidst the bad news lately, and things remain relatively calm across the Atlantic with regard to sovereign debt and banking. Fed Chairman Bernanke's speech in Jackson Hole was a non-event for Oil traders, as he took QE3 off the table for the time being, but not off the table completely. Since Crude Oil supplies themselves are more than ample, some traders may wish to shift their attention instead to the products, especially with Labor Day and the official end of the driving season approaching.
Technical Notes
Turning to the chart, we see the October Crude Oil contract trading near the recent high close of 87.88. A close above this level could signal a double-bottom formation and may send prices into the mid to high 90's. Failure to close above this level could signal that Crude Oil may continue to trade in a sideways range in the near-term. The rebound in prices has sent the RSI into near-overbought levels, which could result in resistance.
Rob Kurzatkowski, Senior Commodity Analyst
