Where is Crude Oil Headed on Tuesday?

CNBC's Sharon Epperson discusses the day's activity in the commodities markets, and looks ahead to where oil is likely headed tomorrow.




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Crude Oil Market Commentary For Monday Evening

Crude oil closed up $1.87 at $86.74 a barrel today. Prices closed near the session high today and hit a fresh 1.5 year high today. Fresh speculative and commodity fund buying were seen today as prices have now pushed above the pivotal $85.00 level. A weaker U.S. dollar index and higher U.S. stock indexes today supported buying interest in crude oil. Crude oil bulls have the solid overall near term technical advantage and gained more upside momentum today.

Natural gas closed up 19.2 cents at $4.278 today. Prices closed near the session high today on short covering. Prices today showed good good follow through buying from solid gains Thursday and a bullish "key reversal" up on the daily bar chart has been confirmed. That is one early technical clue that a market bottom is in place. However, the bulls have more work to do in the near term to suggest an uptrend can be started.

The June U.S. dollar index closed down 14 points at 81.29 today. Prices closed near mid-range today in quieter trading. No serious chart damage has occurred recently. The bulls still have the overall near term technical advantage. Also, the Euro currency closed down as well, 11 points at 1.3475 today. Prices closed nearer the session low today in quieter trading. Euro bears have the overall near term technical advantage. Prices are still in a four month old downtrend on the daily bar chart.


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Bulls Take Charge as Oil Surges Past $86

U.S. crude oil futures surged above $86 as fresh technical buying on a wave of economic optimism helped to lift the energy commodity's price to new heights Monday.
Spurred by encouraging economic data on the domestic front, the price of light, sweet crude oil for May delivery rose for a fifth consecutive session on the NYMEX, settling to $86.62 a barrel, the highest level in 18 months.

Additionally, NYMEX gasoline futures gained on the session to $2.35 a gallon, while natural gas spot prices at the Henry Hub also burned brighter on the commodity exchange at $4.28 Mcf. Today, crude rose alongside equities on positive economic data spotlighting an increase in pending home sales. Both markets also bounced on news that the U.S. services sector grew at its fastest pace in nearly four years during the month of March, an ISM report showed.

Oil Price at Full Throttle
Oil prices have gained by more than 8% during the span of a five day rally. "The market's starting to trend pretty nicely for oil," noted Gene McGillian, analyst at Tradition Energy in Stamford, Connecticut. However, given the ample supplies still underlying the crude oil market, this year's record price above $86 is arguably a bit on the high side, according to McGillian. "We really haven't seen any kind of significant increase in fuel demand levels," he underscored.

The analyst continued, "The price keeps pushing up for the same fundamental reasons, and everyone's waiting and watching to see how high it will go before the price has to turn back to a more realistic level." "But right now," McGillian added, "it looks as if the bulls are in charge and not fighting much resistance yet."


Reporter Nancy Agin writes for Rigzone.Com


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SandRidge Targets Shift to Oil From Gas in Acquisition of Arena Resources

Arena Resources Inc.’s oil reserves were the main target of SandRidge Energy Inc.’s $1.55 billion acquisition of the company as the buyer turns its focus to crude from natural gas production. “Our oil reserves were the real attraction to SandRidge,” Arena Resources Chairman Tim Rochford said in an interview. Reserves stood at 69 million barrels of oil equivalent as of Dec. 31, he said. Oklahoma City-based SandRidge will pay $2.50 in cash and 4.78 SandRidge shares for each Arena Resource share, a 17 percent premium to Arena’s April 1 close of $34.26, the companies said yesterday.

The purchase is SandRidge’s second in West Texas since November, when it bought properties from Forest Oil Corp. for about $800 million. By buying Arena Resources, SandRidge becomes one of the largest producers of West Texas conventional oil and gas. SandRidge said it will primarily drill shallow, low-risk reservoirs in the so called central basis platform, a part of the Permian Basin in West Texas. SandRidge is shifting its focus to oil as crude rises and gas futures fall. The company explores for both, though SandRidge Chief Executive Officer Tom Ward said last month at the Howard Weil Energy Conference that drillers can make “10 times more money” producing oil rather than gas.

Transformation to Oil

“We’ve been transforming from strictly a gas company to an oil company over the last couple of years,” Ward said in an April 4 telephone interview. SandRidge fell 38 cents, or 4.8 percent, to $7.47 at 10:42 a.m. in New York Stock Exchange composite trading. The stock has dropped 21 percent this year. Tulsa, Oklahoma-based Arena Resources rose $2.70, or 7.9 percent, to $36.96. About 85 percent of SandRidge’s revenue at the end of 2008 came from natural gas, Ward said. The company’s current production is split at about 28 percent oil and 72 percent gas, while oil makes up about 54 percent of revenue, based on 10-year futures prices, he said.

SandRidge will be about 35 percent oil in terms of production, including the Forest and Arena transactions, Ward said today on a conference call with analysts and investors. The combined company will hold about 200,000 acres in the Permian Basin and 5,700 in other areas. The purchase will add to SandRidge’s cash flow in 2011, Ward said.

Gas Slump

“There have been a couple of hard years for gas,” because of the drop in demand that occurred in the recession, Ward said. “We’ve been looking for oil assets.” The agreement reflects SandRidge’s “contrarian style” of buying assets for terms that are below perceived value, said Scott Hanold, an energy analyst at RBC Capital Markets in New York. RBC values Arena Resources shares between $45 and $50, said Hanold, indicating that SandRidge is acquiring the company at a 10 to 20 percent discount.
Natural gas futures on the New York Mercantile Exchange have tumbled 27 percent this year. Crude oil is up 8 percent in the same period and 68 percent over the past year.

“Gas has been under pressure,” said Andy Lipow, president of consulting firm Lipow Oil Associates LLC in Houston. The Arena Resources acquisition, subject to the approval of shareholders of each company, is expected to close in June or July, Ward said. Deutsche Bank AG and Covington & Burling LLP are advising SandRidge, and SunTrust Banks Inc., Tudor Pickering Holt & Co., and Johnson & Jones PC are counseling Arena Resources.

Reporter Mark Shenk can be contacted at mshenk1@bloomberg.net.


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Crude Oil Moves Higher as Bulls Take a Clear Near Term Advantage

Crude oil was higher overnight and spiked above January's high as it extends the rally off February's low. Stochastics and the RSI are bullish signaling that sideways to higher prices are possible near term. If May extends the rally off February's low, the 38% retracement level of the 2008-2009 decline crossing at 86.16 is the next upside target. Closes below the 20 day moving average crossing at 82.25 would confirm that a short term top has been posted. First resistance is overnight high crossing at 85.89. Second resistance is the 38% retracement level of the 2008-2009 decline crossing at 86.16. First support is the 10 day moving average crossing at 82.64. Second support is the reaction low crossing at 82.25.

Natural gas was lower overnight as it consolidates some of last Thursday's rally. Stochastics and the RSI are bullish signaling that sideways to higher prices are possible near term. Closes above the 20 day moving average crossing at 4.211 would confirm that a short term low has been posted. If May extends the decline off December's high, weekly support crossing at 3.502 is the next downside target. First resistance is last Thursday's high crossing at 4.157. Second resistance is the 20 day moving average crossing at 4.211. First support is last Thursday's low crossing at 3.810. Second support is weekly support crossing at 3.502.

The U.S. Dollar was slightly lower overnight as it consolidates below the 10 day moving average crossing at 81.61. Stochastics and the RSI are neutral to bearish hinting that a short term top might be in or is near. Closes below the 20 day moving average crossing at 81.05 are needed to confirm that a short term top has been posted. If June renews this winter's rally, the May 2009 high on the weekly continuation chart crossing at 83.34 is the next upside target. First resistance is March's high crossing at 82.52. Second resistance is the May 2009 high on the weekly continuation chart crossing at 83.34. First support is the 20 day moving average crossing at 81.05. Second support is last Thursday's low crossing at 80.52.

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What to Expect in April for Stocks & Precious Metals

Gold Exchange Traded Fund – Daily Chart

As you can see the price action of gold has been trading within a few patterns the past couple months. First we saw a nice ABC Retrace correction and now it looks like a possible reverse Head & Shoulders or Wedge pattern is forming.

All three of these patterns are bullish but resistance must be overcome before I will start putting my money to work.



NYSE & NASDAQ Indexes – Daily Charts

We saw the broad market trade sideways for the majority of the week. As usual we had a pre-holiday pop in prices with the week closing slightly positive for stocks. These gains are generally given back the following week as volume picks back up.

The one thing that has me scratching my head is that the major indexes like SP500, Dow, NASDAQ and Russell 2000, all stayed below their previous weeks high. But the NYSE as shown below as the top chart clearly broke out to a new high.

I look at the NYSE as leading indicator and this makes me think we could see stocks grind higher right into earning season. All we can do at this point is wait for more data points on the chart and continue analyzing the market one day at a time.



Weekend Trading Conclusion:
As I mentioned last week, the market is over extended as we enter earning season. The market is in the same situation as we saw going into the January earning season.

I do not think we will have a huge pullback but I think a 3-5% correction is likely in the coming days or week. Once we get a pullback we should see support around the 30 or 50 day moving averages and then see the market head toward new highs once again.

The precious metals sector is getting a lot of attention because of the whistle blower on JP Morgan stating that metals are seriously manipulated with a huge amount of short positions still in place. I think this could be helping this sector and I hope we get a low risk setup in the coming week or two.

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Crude Oil Climbs to 17 Month High on Speculation Demand Recovering

Crude oil rose to a 17 month high on speculation global demand will increase as the world economy recovers from recession. A report today in the U.S., the world’s largest oil user, will probably show service industries expanded for a third month in March, according to a survey of economists. Oil prices have established a floor of $75 a barrel, Venezuelan Oil Minister Rafael Ramirez said April 2. There is no need for the Organization of Petroleum Exporting Countries to increase production, he said.

Crude oil for May delivery rose as much as 81 cents, or 1 percent, to $85.68 a barrel in after hours electronic trading on the New York Mercantile Exchange, the highest since Oct. 9, 2008. It was at $85.62 at 8:10 a.m. in Tokyo. The contract rose $1.11, or 1.3 percent, to $84.87 on April 1. Prices climbed after reports showed Chinese, European and U.S. manufacturing expanded, while pessimism decreased among Japan’s largest industrial companies.

Oil trading resumed today after the exchange closed on April 2 to mark the Good Friday Easter holiday. A Labor Department report that day showed the U.S. economy gained 162,000 jobs in March, the most in three years, buoyed by 48,000 temporary workers hired by the government to conduct the census. Oil traded within a range of $68 to $84 a barrel in the six months ended March 30. Prices climbed the past two months as improved investor confidence lifted world equity markets and U.S. refining climbed from a 16 month low.....Read the entire article.

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Anonymous Sources Say InterOil, Is Close to a Deal, Shortsellers Scoff

The stock of controversial energy firm InterOil (IOC) rose yesterday on a Platts' story that the company may be close to signing a partnership with a Japanese company.
Such a partnership might allow InterOil (IOC) to begin to actually exploit the energy resources it believes it has found in Papua New Guinea.

Not surprisingly, however, IOC's critics suggest that the Platts story was planted by the company in an attempt to keep hopes alive. They also note that the deals described in the Platts story won't help the company build a major liquid natural gas plant, which is the only way it will be able to derive real value from the finds.
Platts' LNG Daily reports, according to "sources close to the matter," that InterOil "reached a preliminary agreement" with a "Japanese partner" for a liquids stripping project, an alliance that would be a precursor to the company's planned $7 billion liquid natural gas development.

The article is short on specifics: InterOil and its partners are in “final negotiations” to select a partner, “as there are several Japanese companies that have expressed interest in becoming partners in the condensate and the LNG project,” said the source, declining to elaborate. If true, such a partnership would add needed cash and credibility to the company's attempts to build its operations and exploit the "world record" energy reserves it has long claimed. Another potential partner is Indian gas company Gail, which is in talks to buy a stake in InterOil, according to Upstream.....Read the entire article.


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Phil Flynn: April Fooling

President Obama is going to open up some off shore drilling. April fool! No, I am not kidding but as exciting as that might be, the oil market is not reacting to drill, drill, drill but to jobs, jobs, jobs. A weak ADP employment report and today super hot data coming out of China was enough to make traders forget about a bearish supply report from the Energy Information Agency and the prospects of perhaps maybe someday more domestic oil and gas production. Oil prices are soaring to the major resistance of $85, an area that if taken out would break us out of almost a 17 month trading range. Of course it is not a breakout until it is so let’s focus on what is driving that the madness.


First, it is the weak ADP employment data. After last month’s supposed snowstorm influenced monthly jobs report, the hopes were rising that perhaps this month’s jobs number released on Good Friday might be a blockbuster. Yet a disappointing jobs ADP report showed a decline of 23,000 private-sector jobs as opposed to the 50,000 gain that had been expected. This was very bullish for oil because it reinforces the belief that interest rates in the US will stay lower longer than expected as the fed will be reluctant to remove this historic and massive stimulus from the system. This in turn will weigh on the dollar and drive up oil demand built upon cheap money, not to mention some smoke and mirrors.


This news was enough to make traders eventually shrug off a bearish EIA report. The EIA reported that crude oil inventories increased by 2.9 million barrels last week. That puts us at 354.2 million barrels is 6.5% above the five year average. As for gas a surprising increase of 0.3 million barrels last week, putting supplies 4.9% above the five year average. Distillates fell by 1.1 million barrels but are still a whopping 19.6% above the five year average.


Oil is being driven even higher on strong manufacturing data out of China. China's official PMI rose to 55.1 in March from 52.0 in February which was higher than expected and showing that China’s economy is continuing to soar. We see strong growth that will send inflation surging in China and a government that due to pride and political reasons, may be reluctant at this point to try to slow things down. This is adding to the momentum in oil. Playing hardball with the Chinese over its currency means the risk of creating a bubble in China has gone up. The Chinese will more than likely wait too long to slow things down raising a risk of a crash that can have global implications. Of course that may not be today and that is a story for down the road.


Since the beginning of this year I have been saying that oil had the potential to break down to $40 a barrel based upon my longer term wave charts. Of course I also said that the possibility would be negated if oil closed above $85 a barrel. Yet I also said that the move would not be straight down and that instead of taking a longer term position it might be more advantageous to trade the ranges from both the long and short side. I said back then if you had to take a position on a long term basis back in January would be short with a stop above $85. Still I recommended also that this move would not be straight down and I thought it would be better to trade the ranges as opposed to a straight short position or long position. Along the way we have played oil from both the long end and short end.

I reasoned that oil was caught basically in two congruent trading ranges between $75 and $85 and a lower range between$65 and $75. Since we made that call oil has fallen as low as 6859 only to rally back up to a 17 month high. We have seasonal strength, global macro economics conditions, along with strong demand out of China, where the government is playing politics and therefore will be less likely to try and reign in inflation, has oil threatening to negate the longer term bearish formation. If oil closes above $85 expect another new trading range peaking around $95. That is only if oil closes above $85.00.

You can reach Phil at pflynn@pfgbest.com


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