EU Strong-arming of Greece Lifts Crude
Thursday, November 3, 2011
Crude Oil traders have seen a bullish bias return to the market in recent weeks. The ongoing European soap opera over Greek debt had many traders concerned over the EU's growth prospects, which were probably overstated. Technically, Crude Oil is taking a break after jumping almost 20 dollars in a short period of time. The market remains overbought, suggesting the consolidation may continue in the near-term. Some traders may wish to consider looking for a breakout above the 95.00 level to test the long side of the market or to add to their positions if already long.
Fundamentals
Crude Oil futures are modestly higher this morning, as the EU is putting pressure on Greece to accept the most recent bailout package. The package is expected to keep the embattled nation solvent, at least temporarily. Enthusiasm over the aid package has been tempered by the fact that it does not offer long-term solutions, and also because of the build in US Crude Oil inventory levels. Despite the build in petroleum, the weather outlook for the US this winter is expected to bring severe chills. This could stoke the demand for Heating Oil in the Northeast. The large drawdown in distillates could result in a continuation of the trend in the RBOB/Heating Oil spread. Heating Oil recently hit a premium of 45 cents over RBOB. Resistance in this spread is at 50 cents, which if broken, could result in the spread moving to a dollar or more, as was the case in late 2008. This could also result in gains in Crude Oil prices, as refiners would likely have to work down inventories to produce enough distillates to keep up with demand.
Technical Notes
Turning to the chart, we see the December Crude Oil contract continuing to trade sideways between the 90 and 95 levels. This break is not surprising, given the surge in Oil prices in recent weeks, which resulted in the market being a bit overheated. Since the market rallied into the consolidation, there is a bias toward an upside breakout. The upward crossover of the 20 and 50-day moving averages could be seen as a positive for the market near-term.
Rob Kurzatkowski, Senior Commodity Analyst
