Finally traders are talking about the supply/demand fundamentals that are the backbone of this Bull Run in the energy complex. Players like Goldman Sacks, T. Boone Pickens, and UBS have seen the light and are predicting anywhere from $150-$200 a barrel oil. However, we still have the naysayers talking about an oil bubble driven by the speculators.
The energy complex has been driven by the exponentially growing global demand and tightening supplies. No such bubble.
Let’s talk numbers...
World oil production is estimated to be 84 million barrels a day (excluding disruptions), while world oil consumption is 87 million barrels a day, leading to a world deficit in oil and oil products putting upward pressures on prices.
This supply/demand conundrum married with the increasingly dangerous geopolitical risk of the market, the weakening dollar, and the technical trade point to a precipitous rise in prices.
Moreover, if you look at long-dated oil futures contracts there is a contango in effect. Meaning that there is more of a premium for the longer-dated contracts (i.e. the further you go out in time the more expensive). The super-long-dated contacts, such as the Dec2016 is trading well over $140 a barrel. Factors mirroring the bullish sentiment in the market.
Yesterday, the energy complex rose on the news of drawdowns in crude oil and RBOB inventories. According to the DOE, crude oil inventories fell by 5.4 million barrels while RBOB inventories fell by 800 thousand barrels.
Light, sweet crude for July delivery rose $4.19 to settle at $133.17 a barrel on the Nymex. Prices continued the move in after-hours trading crossing $135 a barrel for the first time.
All other energy futures also traded higher. June gasoline futures rose 9.21 cents to settle at $3.3965 a gallon after rising to a trading record of $3.4081, and June heating oil futures rose 13.34 cents to settle at $3.9084 a gallon after setting a new trading record of $3.9187.
It’s not too late to make money in the energy complex.
Fundamentally and Technically crude oil is strong buy. All short-term and long-term technical indicators point to higher prices. If Crude trades through the first resistance level of $134.86 a barrel, than it will trade trough the second resistance level of $135.09 a barrel (intraday high). Furthermore, heating oil, RBOB, and Nat Gas all offer profitable trading scenarios.
My opinion hasn’t changed; traders should only be long this market!
Thursday, May 22, 2008
Tuesday, May 6, 2008
Keep your eye on Crude oil…
In NYMEX trading on Monday, light sweet crude once again rose to record levels, touching $120.36 before settling at $119.97 a barrel. Confirming that the bulls are firmly in control of the market.
Crude oil sharp rise can be attributed to a microcosm of factors. First, the shorts were squeezed and forced to cover positions. Second, there were upward price pressures driven by mounting supply fears throughout the world. In Nigeria, the second largest exporter of crude to the U.S., has suffered continual violent attacks on major pipeline and flow-stations. American oil interests in Iraq were threatened by Kurdish rebels. Moreover, Iran the second largest OPEC producer refuses to withdraw from its nuclear program causing global concern. Lastly, the dollar lost some ground against other currencies.
Furthermore, In the face of record prices global demand continues to grow outpacing U.S. demand deconstruction, this coupled with the supply issues lies the fundamental basis for the market.
How to trade it…
Technically crude oil is strong buy. All short-term and long-term technical indicators point to higher prices. If Crude trades through yesterdays high of $120.36, it will test the first resistance level of $120.93 a barrel (intraday high).if it trades trough that level it will test the second resistance level of $121.60 a barrel. Where there should be some profit taking. My opinion hasn’t changed; traders should only be long this market.
Note: we are in a long-term bull market, however there are corrections (last week), but they don’t last long. Take advantage on these corrections and buy the dips
Crude oil sharp rise can be attributed to a microcosm of factors. First, the shorts were squeezed and forced to cover positions. Second, there were upward price pressures driven by mounting supply fears throughout the world. In Nigeria, the second largest exporter of crude to the U.S., has suffered continual violent attacks on major pipeline and flow-stations. American oil interests in Iraq were threatened by Kurdish rebels. Moreover, Iran the second largest OPEC producer refuses to withdraw from its nuclear program causing global concern. Lastly, the dollar lost some ground against other currencies.
Furthermore, In the face of record prices global demand continues to grow outpacing U.S. demand deconstruction, this coupled with the supply issues lies the fundamental basis for the market.
How to trade it…
Technically crude oil is strong buy. All short-term and long-term technical indicators point to higher prices. If Crude trades through yesterdays high of $120.36, it will test the first resistance level of $120.93 a barrel (intraday high).if it trades trough that level it will test the second resistance level of $121.60 a barrel. Where there should be some profit taking. My opinion hasn’t changed; traders should only be long this market.
Note: we are in a long-term bull market, however there are corrections (last week), but they don’t last long. Take advantage on these corrections and buy the dips
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