Crude Oil

Crude oil spiked on the news of the uprising in Eqygp with the North Sea Brent at almost $12 premium to the U.S. WTI. Read about why and outlook here.

Since the start of the New Year, West Texas Intermediate (WTI) crude oil have been moving with significant bearish sentiment. However two new events that could disrupt supply worse than Hurricane Ivan will likely turn the momentum aournd very quickly....

Just in time for Christmas, On Wednesday, Dec. 22, U.S. gasoline prices hit an average $3 a gallon for the first time in more than two years, according to AAA's Daily Fuel Gauge Report. Meanwhile, U.S. stocks and oil also climbed to the highest levels since 2008.

Despite the recent price surge in crude oil this week--thanks mostly to a Fed's QE2-induced weak dollar, the fact is that crude inventory levels are actually sitting at the highest in 2010. This, plus other market factors coud pressuure crude prices to trade back down around the $75 to $85 range.

Once again we find some strange activity occurring in these markets from a trading perspective, and it is time that the increased staff and resources of the beefed-up CTFC enforcement division look into crude oil and silver markets, in particular.

Due to the abundance of inventory and supply, crude has remained range-bound, and started to decouple and underperformed other commodities, as well as equities. While high stocks level traps crude, the dollar weakness, on the other hand, has prompted some OPEC members to support $100 oil.

The rush back into commodities after the jobs report indicates that this inflation trade still has some major support and legs by investors.

Last week the shorts were all lined up for another bearish inventory report for Petroleum products from the EIA, but lo and behold, miracles do actually occur.

The Structure of Crude Oil,including Contango and Options Skew, provides options and futures traders unique opportunities to limit risk and initiate positions with excellent value.

Crude closes above $80 yesterday for the first time since May. However, a look at some fundamental and macroeconomic signals showed crude oil could be under increasing pressure, thus range-bound, through the rest of this year.

[1] The S&P 500 meets key trendline resistance on day 55 of a Fibonacci time cycle as exponential moving averages cluster ... [2] daily, weekly and monthly support / resistance levels for the US Dollar ... [3] Crude Oil futures trace out a tricky wedge formation

Nice stuff ...

Copper and crude oil are both base essentials heavily reliant upon by economies globally for everyday usage, with no meaningful substitution options. Gold, on the other hand, is not as essential to keep the everyday world running seamlessly, and could conceivably be substituted by other commodities with a change in global monetary standard or people’s perception. From that perspective, I think there are a few recent trends pertaining to crude and copper that are being misinterpreted.

After reading a Zero Hedge article on crude oil futures earlier today I was motivated to write something on the topic. I have been railing against the securitization of the oil futures market for some time. It’s nice to see someone else sharing those sentiments. Below are some notes I jotted down after reading the article.

I do have to agree that for 14-15 months, almost without interruption now, and since August, 2007, more generally, that the Nymex crude oil contract has too often been used as a surrogate for the economy, the DJIA or currencies, most notably the euro. However, last week’s sharp decline may have severed the relationships, at least temporarily. - Peter Beutel, Cameron Hanover

Bloomberg reported that crude oil open interest was 1.41 million contracts, the highest since June 11, 2008. Some analysts think the high level of open interest raises concerns about whether the market is overvalued relative to fundamentals and whether the upward price trend can continue.