Monday, June 2, 2014
Large speculators continue to add to their net-long positions in Crude Oil, with the most recent Commitment of Traders report showing non-commercial traders, usually large funds and speculators, added over 24,000 new net-long positions during the week ending May 20th. The total net-long position for non-commercial and non-reportable traders has surpassed 440,000 contracts, which is nearly a record net-long position. This may set the stage for a potentially steep price correction should the price-trend turn bearish and this huge net-long position starts to be liquidated.
Oil prices continue to hold near recent highs, despite U.S. Oil inventories that are well above the 5-year average. The most recent Energy Information Administration (EIA) energy stocks report released this past Thursday showed that U.S. Oil inventories increased by nearly 1.66 million barrels last week to stand at 392.954 million barrels. This is nearly 16 million barrels above the 5-year average for this time of year. However, inventories held at Cushing, Oklahoma, the delivery point for the NYMEX WTI Oil futures, continue to decline, falling to their lowest levels in 6 years. Outside the U.S., concerns about a continued shutdown of Libyan Oil fields due to a conflict between government forces and rebel groups over Oil revenues has prevented a ramping-up of production from this important Oil exporting nation. Although it appears that political tensions between Ukraine and Russia remained at a heightened state, the recent election of Petro Poroshenko as Ukrainian President and a noticeable withdrawal of Russian troops from the Ukrainian boarder may be a signal that tensions might begin to ease, which could allow Crude traders to remove some of the risk premium from Oil prices in the coming weeks.
Looking at the daily chart for July Crude Oil, we notice a bearish divergence forming in the 14- day RSI as this momentum indicator has failed to make new highs as prices rose. It appears that we might be in the midst of a near-term price correction, although it is still too early to call a near-term top in prices -- especially with the market holding above the 20-day moving average. The 14-day RSI is also trending back towards more neutral levels, with a current reading of 55.85. Support is seen at the recent low of 100.82, with resistance seen at the recent high of 104.50.
Mike Zarembski, Senior Commodity Analyst