Monday, April 1, 2014
Crude Oil futures have been grinding higher since the middle of the month and have been trading above the $100 level over several sessions. Last week, the EIA reported that Cushing, OK inventory levels had fallen the prior week. US consumer confidence was also stronger than expected, lifting hopes that demand could increase. The fact that Europe and the US opted not to levy new sanctions against Russia could be seen as supportive for Oil prices. The standoff between Russia and the Ukraine has sent Crude Oil prices on a roller coaster ride. At first, the crisis threatened to destabilize the region, sending prices screaming higher. Now, the focus is on sanctions and their potential detrimental effect on the Crude Oil market.
The API set a positive tone early last week after the industry group indicated that gasoline inventories had decreased by 1.2 million barrels. EIA data offered follow through by reporting that Cushing inventories levels had fallen for the eighth straight week to the lowest level in two years. The EIA had also reported that gasoline inventories had fallen by 1.6 million barrels for the week, although demand is not as robust. Total motor gasoline supplied, which is the group's measure of demand, averaged 8.3 million barrels a day for the past four weeks, which is down 1.5% from the same period a year ago. Geopolitically, despite trying to talk down the situation and playing down their ambitions, Russia has been amassing military forces along its border with the Ukraine. This has added a fear premium to the prices of Crude Oil.
Turning to the chart, we see the May Crude Oil contract grinding higher over the past few weeks. Prices did jump a bit after crossing the 100 level, indicating some shorts may have been squeezed out of the market. Friday and yesterday's close both hinted at a possible near-term reversal. It is interesting to note that the 20-day momentum is negatively diverging from the RSI indicator and price. This suggests the market may be set to reverse.
Rob Kurzatkowski, Senior Commodity Analyst