Crude Set for More Range-Bound Trading?
Thursday, January 12, 2012
Crude Oil futures got a jolt from the Iranian and Nigerian situations, as many traders put European debt concerns on the back burner for the time being. While the market is well supplied at the moment, the geopolitical situation may take precedence in the near-term. Technically, it looks as though Oil may be in store for more range-bound trading. Some traders might possibly wish to consider initiating a short futures options position in the Crude Oil, like selling a Feb Crude Oil 97.5 put for a credit of 0.50, or $500. The maximum profit would be the initial premium received and the trade carries unlimited risk, so traders may wish to exit the position should the underlying futures contract dip below 98.00.
Fundamentals
Crude Oil futures have bounced due to mounting tensions over Iran's nuclear program and a possible strike in Nigeria that could significantly cut production. There has been much posturing over the Iranian nuclear program in recent years, and the situation seems to be coming to a head now, with possible sanctions looming, Iran's war games, and the US moving a carrier into the region. This is not the first time the situation has heated-up, and previous contentious situations have eventually cooled off. Oil traders, nonetheless, have been concerned about a supply disruption from the Oil-rich nation. In Nigeria, Oil workers' unions have begun taking workers out of Oil fields and shutting down platforms in protest to the government eliminating fuel subsidies. This tension in Nigeria could ease, however, if the government bows to the demands of workers. Crude Oil also got a boost from rising stock prices. Equities have been on the rise due to reduced fears over Europe and a modest improvement in the US economic outlook.
Technical Notes
Turning to the chart, we see the February Crude Oil contract looking as though it was set to break-out to the upside, after trading into the 103's for several sessions to start off the year. Subsequently, prices pulled back and stabilized near 100. This indicates that prices may be locked into a range once again, albeit a tighter one between 100 and 104. The direction of the market over the near to medium-term will likely be determined by where prices are able to snap out of this range. The oscillators are giving neutral readings, also suggesting range-bound trading in the near-term.
Rob Kurzatkowski, Senior Commodity Analyst
