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!
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