The Crude Oil Trader

Friday, October 8, 2010

Bloomberg Survey: Crude Oil May Fall Next Week as U.S. Inventories Climb

Crude oil may decline next week as U.S. inventories increase and fuel consumption drops, a Bloomberg News survey showed. Seventeen of 33 analysts, or 52 percent, forecast crude oil will decline through Oct. 15. Twelve respondents, or 36 percent, predicted an increase, and four estimated prices will be little changed. Last week, 42 percent said crude would climb.

U.S. crude oil supplies increased 3.09 million barrels to 360.9 million last week, leaving stockpiles 13 percent higher than the five year average for the period, an Energy Department report on Oct. 6 showed. Fuel consumption dropped 6.4 percent to 18.5 million barrels a day, the biggest weekly decline since Feb. 27, 2004, according to the department.

“Inventories are higher than a year ago, even when adjusting for demand, yet prices are a good $10 higher,” said Tim Evans, an energy analyst with Citi Futures Perspective in New York. “There’s just not the demand to justify the recent rally in prices.”

Oil in New York touched $84.43 a barrel yesterday, the highest level since May 4, before retreating 1.9 percent to settle at $81.67. Crude oil for November delivery has increased 0.1 percent so far this week on the New York Mercantile Exchange. Prices are up 17 percent from a year ago. The oil survey has correctly predicted the direction of futures 47 percent of the time since its start in April 2004.

Bloomberg’s survey of oil analysts and traders, conducted each Thursday, asks for an assessment of whether crude oil futures are likely to rise, fall or remain neutral in the coming
week. The results were:

RISE NEUTRAL FALL
12 4 17

Bloomberg reporter Mark Shenk can be contacted at mshenk1@bloomberg.net

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Mike Paulenoff: Chart on Oil

For better or worse, richer or poorer, my big picture pattern work on oil continues to warn me that I should treat the May decline from $87.15 to $64.24 as the first downleg either in a large, incomplete correction, or the first downleg in a bear market for oil. The only way to invalidate those scenarios will occur on a price climb that hurdles $87.15. Barring upside continuation, the bearish scenarios projects to an optimal target of $63-$58. Whether or not today's weakness represents the end of the "recovery rally" or just a pause prior to yet another surge towards the May high is too early to tell. However, as of this moment, the nearby oil price action has the potential to put in a significant downside reversal day, which is a strong signal that a near term trend change has occurred for oil.

Click chart to enlarge.....

Courtesy Tim Knight's Slope of Hope

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Shale Gas Drilling Techniques Revolutionize Oil Shale Drilling

Colorado based BENTEK Energy reports that horizontal drilling and hydraulic fracturing, which has revolutionized U.S. shale gas production and other unconventional plays, is also transforming the domestic crude oil industry. As a result, U.S. oil production is on the rise for the first time in 23 years.

In its new report, The Rush to Unconventional Oil, BENTEK notes that technologies are being used to unlock oil from shales in a number of plays such as the Bakken and Niobrara shales in the Rockies region, the Bone Springs/Wolfberry, Granite Wash and Eagle Ford plays in and around Texas and the liquids rich shales in the southwestern Marcellus.

The most explosive growth is occurring in the Bakken shale in North Dakota, where production has grown 79 percent in the past year, or 114,000 b/d, compared to the five-year average of 144,000 b/d, boosting North Dakota past Louisiana as the nation's fourth largest oil producing state. As a result, the project for Rockies oil production based on the current rig count indicates 19 percent growth next year to 717,000 b/d. The U.S. Geological Survey.....Read the entire article.

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Crude Oil Technical Outlook For Friday Morning Oct. 8th

Crude oil was lower due to profit taking overnight as it consolidates some of the rally off August's low. Stochastics and the RSI are overbought and are turning bearish signaling that a short term top might be in or is near.

Closes below the 20 day moving average crossing at 78.16 would confirm that a short term top has been posted. If November extends the rally off last week's low, the 62% retracement level of May's decline crossing at 84.65 is the next upside target.

First resistance is Wednesday's high crossing at 84.09
Second resistance is the 62% retracement level of May's decline crossing at 84.65

Crude oil pivot point for Friday morning is 82.37

First support is the 10 day moving average crossing at 80.19
Second support is the 20 day moving average crossing at 78.15

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Thursday, October 7, 2010

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Crude oil futures plunged $1.56 Thursday as a stronger dollar and higher natural gas inventories caused energy prices to stagnate. Oil prices have recently been supported by the dollar euro connection a weaker dollar means an increase in crude prices. When the dollar weakens, dollar based commodities become cheaper for traders with foreign currencies. Rebounding from an 8 month low, the greenback rose against the euro sending crude prices lower Thursday.

Light, sweet crude settled at $81.67 a barrel on the New York Mercantile Exchange Thursday, after peaking at $84.43 and plummeting to $81.00. According to the Energy Information Administration (EIA) on Wednesday, U.S. crude inventories rose to 360.9 million barrels for the week ended Oct. 1-13 percent higher than the five year average for the period. The EIA also reported a 6.4 percent drop in fuel consumption, the highest decline since Feb. 27, 2004. Analysts deem the oversupply in crude quite bearish.

Henry Hub natural gas for November delivery fell to its lowest since Sept. 2009, settling at $3.62 per thousand cubic feet. The 25 cent drop came on reports of record level storage builds.
Natural gas inventories increased by 85 billion cubic feet to 3.499 trillion cubic feet last week, as reported by the EIA on Thursday. Gas in U.S. storage hit an all time high in November 2009 at 3.837 trillion cubic feet. Natural gas fell to a 52 week low of $3.61 during Thursday's trading session and peaked at $3.89. Front month contract RBOB gasoline also settled four cents lower at $2.12 a gallon Thursday, after trading between $2.105 and $2.20.

Courtesy of Rigzone.Com

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Sharon Epperson: Where is Crude Oil and Gold Headed on Friday?

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

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Stock Market and Commodities Commentary For Thursday Evening Oct. 7th

The U.S. stock indexes closed mixed again today in subdued, pre-report trading. The stock index bulls still have the overall near term technical advantage as uptrends are in place on the daily bar charts. Traders are gearing up for Friday's U.S. employment report. Look for more active trading in the wake of Friday morning's jobs data.

Crude oil closed down $1.76 at $81.48 a barrel today. Prices closed nearer the session low today after hitting a fresh nearly five month high early on. Price action today also scored a bearish "outside day" down on the daily bar chart. Bulls faded today and if there is good follow through selling pressure on Friday, it will suggest a near term market top is in place. At present, prices are still in a six week old uptrend on the daily bar chart.

Natural gas closed down 24.2 cents at $3.623 today. Prices closed near the session low today and scored a fresh contract low. The bears still have the solid overall near term technical advantage and gained fresh downside momentum today.

Gold futures closed down $13.30 at $1,334.30 today. Prices today closed nearer the session low in a big trading range day, after hitting another fresh contract and all time record high early on. A firming U.S. dollar index as the session progressed did help to pressure the gold market today. Profit taking pressure was featured Thursday, following recent price gains that did put the gold market into a technically overbought posture, on a near term basis. Thursday's price action did produce a bearish "outside day" down on the daily bar chart, whereby the high is higher and the low is lower than the previous session's trading range, with a lower close.

The U.S. dollar index closed up 7 points at 77.69 today. Prices closed near mid range today and hit another fresh 8 1/2 month low. Tepid short covering in a bear market was featured. Bears still have the solid overall near term technical advantage. There are still no early clues to suggest a market bottom is close at hand.

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Crude Oil Slip From a 5 Month High as Stocks Take a Breather

Crude oil tumbled from a five month high after the dollar rebounded versus the euro and U.S. equities declined, wiping out an early advance. Oil headed for the biggest drop in three weeks as the greenback climbed against the common currency for the first time in three days, reducing the appeal of commodities as an alternative investment. The Standard & Poor’s 500 Index decreased for a second day as raw-material prices fell, sending producer shares lower.

“The dollar and equities are the main drivers,” said Kyle Cooper, director of research for IAF Advisors in Houston. “What happens with inventories and demand isn’t that important.” Crude oil for November delivery fell $1.56, or 1.9 percent, to $81.67 a barrel at the 2:30 p.m. close of floor trading on the New York Mercantile Exchange. Oil dipped as much as $2.23 to $81, and reached $84.43 earlier today, the highest level since May 4.

Brent crude oil for November settlement declined $1.68, or 2 percent, to $83.38 a barrel on the ICE Futures Europe exchange in London. It reached $86.02, the highest level since May 4. The U.S. currency rose after applications for U.S. unemployment benefits unexpectedly fell. Jobless claims dropped by 11,000 to 445,000 in the week ended Oct. 2, the fewest since July 10, Labor Department figures showed today in Washington. The dollar climbed 0.1 percent against the euro to $1.391 after reaching an eight month low of $1.4029 in New York.....Read the entire article.

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Commodity Trading Range Charts

An interesting way to look at relative strength, courtesy of Bespoke Investment Group.....

Below we highlight our trading range charts of ten major commodities. Most but not all have been on strong runs higher lately.

In the charts below, the green shading represents between two standard deviations above and below the 50 day moving average. Moves above or below the green zone are considered overbought or oversold. As shown, the two most widely followed commodities, oil and gold, are both trading outside of their trading ranges into extreme overbought territory. Silver, platinum, and copper are all at overbought levels as well. Wheat has pulled back to the bottom of its trading range recently, while coffee and orange juice have been heading lower as well. Corn pulled back from overbought territory a couple weeks ago, but it has bounced back some. Finally, natural gas remains in an epic downtrend.