Crude Oil Moves into Positive Territory on all Trade Triangles

The crude oil market continues to consolidate over the $100 level. With all of our Trade Triangles in a positive mode we are looking for this market to move higher. A solid close over the $104 is needed to drive this market to the $120 level. External world events can trigger moves in this commodity. With a Chart Analysis Score of +90 this market remains in a strong trend to the upside. The crude oil market has resistance starting at $104. Long and intermediate term traders should be long this market with appropriate money management stops.

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EIA: Brent Crude Oil Averages Over $100 Per Barrel in 2011

Source: U.S. Energy Information Administration, based on Thomson Reuters.
Note: Brent is the underlying crude oil for the light sweet crude oil futures contracts on the Intercontinental Exchange (ICE). West Texas Intermediate (WTI) represents the spot price for crude oil at Cushing, Oklahoma, the physical delivery hub for NYMEX light sweet crude oil futures contracts.

The crude oil markets sustained high price levels in 2011, as the spot price of Brent averaged $111.26 per barrel, marking the first time the global benchmark averaged more than $100 per barrel for a year (see chart above). The West Texas Intermediate (WTI) crude oil price averaged $94.87 per barrel, up $15 per barrel from 2010, reflecting a discount to the Brent crude oil price due to transportation bottlenecks near Cushing, Oklahoma, the physical delivery hub for NYMEX light sweet crude oil futures contracts.

The price increases in 2011 reflected tightness in the global crude oil market that began in 2010 and marked the highest crude oil prices since 2008. Key factors affecting crude prices in 2011 included:

• Arab Spring. The Arab Spring and the civil war in Libya roiled oil markets during the first half of the year. Prices quickly escalated when protests in Libya intensified in late February. The spot price of Brent increased $15 per barrel from February 18 to March 2 as the market coped with the loss of 1.5 million barrels per day (bbl/d) of exports from Libya. With low spare production capacity, this sudden supply loss challenged the ability of the Organization of the Petroleum Exporting Countries (OPEC) producers to provide incremental supplies to an already tight market.
• Demand. Demand growth in emerging markets, notably China and the Middle East, drove crude oil prices higher in 2011 as well. During the first six months of 2011, the demand for petroleum products in countries not part of the Organization for Economic Cooperation and Development (non-OECD) grew by almost 4%, just as the market was coping with the loss of Libyan exports. Even with declining OECD country demand in 2011, overall global demand rose by 1.2% (1.1 million bbl/d).
• Transportation Bottlenecks. Brent's price strength in the first half of 2011 was not matched by WTI, which became dislocated from the global crude oil market due to transportation bottleneck issues in the U.S. Midwest (see chart below). Amid fast-rising crude oil production from the Bakken Shale formation and Canadian oil sands, prices for U.S. inland crude benchmark WTI weakened relative to those of broadly traded coastal or imported crude oil grades, such as Brent or Louisiana Light Sweet (LLS). Brent's premium to WTI reached a record level of almost $30 per barrel in September 2011. Between October and November the premium fell almost $20 per barrel, most likely as a result of signs that transportation constraints out of the U.S. Midwest, the main market for WTI, were easing. However, the spread ended the year close to $10 per barrel, still wide by historical standards.

Source: U.S. Energy Information Administration, based on Thomson Reuters.

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While WTI experienced a wide trading range in 2011, as its isolated market depressed the crude's value, Brent and other waterborne crudes maintained a fairly stable trading range anchored around $110 per barrel from May through the end of the year. Factors mitigating upward crude oil price pressure in 2011 included:

• Debt Crisis. The European debt crisis loomed large over the global economy, and expectations for economic growth globally, especially in the OECD economies, were not realized over the course of the year, resulting in lower-than-expected growth in demand for petroleum products.
• Strategic Petroleum Release. In response to the loss of Libyan supplies, the International Energy Agency's member countries collectively released stocks from their strategic petroleum reserves during the summer months.
• Supply Gains. Output increases from Saudi Arabia (OPEC's largest producer) and the return of Libyan oil production helped dampen price increases during the second half of the year.

Could Crude Oil Prices Intensify a Pending SP 500 Sell Off?

Crude Oil Settles Lower after US Oil Data

Crude oil futures prices settled 1.3% lower Wednesday, hit by a steep fall drop in U.S. oil demand and a sharp rise in fuel stockpiles. Prices ended at the lowest level so far in 2012, but were supported above $100 a barrel by growing concerns about the reliability of near term crude oil supply from Iran and Nigeria.

A Nigerian union leader said Wednesday that workers at oil platforms are on "red alert" and ready to shut down facilities in a growing national strike that erupted in response to soaring fuel costs after the government abruptly halted a $7 billion fuel subsidies program. Nigeria pumped 2.2 million barrels a day in December, according to U.S. estimates, and supplied 9% of U.S. crude oil imports in the first 10 months of 2011.

Meantime, U.S. Treasury Secretary Timothy Geithner on Wednesday urged top Chinese officials to significantly reduce imports of Iranian crude, after a new U.S. sanctions policy focused on nations that continue trading with Iran. Countries can avoid those sanctions by showing a significant reduction in Iranian oil imports.....Read the entire Rigzone article.


Could Crude Oil Prices Intensify a Pending SP 500 Sell Off?

ONG: Crude Oil Daily Technical Outlook For Wednesday January 11th

Crude oil continues to be bounded in sideway trading from 103.74 and intraday bias remains neutral for the moment. After all, near term outlook will remain bullish as long as 98.30 minor support holds. We'd expect rise form 74.95 to resume sooner or later. Above 103.74 will target 114.83 key resistance next. Though, break of 98.30 will dampen this bullish view and turn bias back to the downside for 92.52 support instead.

In the bigger picture, recent development indicates that pull back from 114.83 was completed at 74.95 already and medium term rally from 33.2 is not finished yet. We'd tentatively treat rise from 74.95 as resuming of such rally. Sustained break of 114.83 will target 61.8% projection of 33.2 to 114.83 from 74.95 at 125.40. On the downside, though, break of 92.52 support will indicate that correction pattern from 114.83 is going to extend further with another falling leg to 74.95 and below before completion.

Nymex Crude Oil Continuous Contract 4 Hour, Daily, weekly and Monthly Charts

Could Crude Oil Prices Intensify a Pending SP 500 Sell Off?

Crude Oil Closed Higher on Tuesday Ending a Three Day Correction

Crude oil closed higher on Tuesday ending a three day correction off last week's high. The mid range close sets the stage for a steady opening on Wednesday. Stochastics and the RSI are overbought but are turning neutral to bearish hinting that a short term top might be in or is near.

Closes below the 20 day moving average crossing at 99.13 would signal that a short term top has been posted. If February extends the rally off December's low, the 75% retracement level of the 2011 decline crossing at 104.84 is the next upside target.

First resistance is last Wednesday's high crossing at 103.74. Second resistance is the 75% retracement level of the 2011 decline crossing at 104.84. First support is the 10 day moving average crossing at 100.23. Second support is the 20 day moving average crossing at 99.17.


Could Crude Oil Prices Intensify a Pending SP 500 Sell Off?

ONG: Crude Oil Prices Lifted by Iranian Tensions Again

Oil prices soared in European session amid news the US is prepared to force to stop Iran's nuclear development. Concerns over oil supply were exacerbated as Venezuela indicated that the OPEC should do nothing to offset the loss, if any, of oil output from the cartel member. China released its preliminary trade data for December. On the whole, import growth missed expectations as driven by earlier Chinese New year, slowdown in external demand which affected processing import growth and the sharp decline in commodity prices.

Tensions over Iran escalated as a former advisor of Obama's National Security Council Dennis Ross said that the US President would not reluctant to use force to stop the nuclear-armed Iran from continuing development nuclear weapons. The comments followed US Defense Secretary Leon Panetta's warning that the US 'will not tolerate the blocking of the Straits of Hormuz...That's another red line for us and that we will respond to them'. 

As we mentioned in previous articles, suspension of Iranian output or the block of the Strait of Hormuz would result in oil supply shortage in the near- to medium-term. While it's expected that Saudi Arabia would increase production to replace any loss of Iranian oil, Venezuela does not seem to agree with that with oil minister Rafael Ramirez stating that 'any Iranian action in defense of their sovereignty is Iran's issue' and 'OPEC can't get involved in this issue'.

China's trade surplus widened to US$ 16.5B in December from US$ 14.5B a month ago. Exports grew +13.4% y/y, easing modestly from +13.8% in the prior month. Import growth fell to +11.8% in December from +22.1% in November. It also missed consensus of +18.0%. For 2011 as a whole, exports and imports expanded +20.3% and +24.9% respectively, down from +31.3% and +38.9% in 2010. Trade surplus narrowed to US$ 155.1B from US$ 184.5B in 2010.

As the second largest oil consumer, China's net imports of crude oil fell to 5.1M bpd in December, down slightly from 5.51M bpd in November. From a year ago, net imports climbed +4.70%, easing greatly from 11.0% and +28.3% in November and October respectively. Net imports of oil products, including gasoline and diesel, soared to the highest level in 2011, however. Although investors may trade the weaker-than-expected import growth number as a negative sign of China's economic growth, it may be driven by seasonal factor (Chinese New Year). Robust export growth should indicate to investors that demands from countries such as the Eurozone, the US and Japan were not as dismal as anticipated.

Posted courtesy of Oil N' Gold.Com

Crude Oil, Gold and Natural Gas Market Commentary For Monday Jan. 9th

Crude oil closed lower due to profit taking on Monday as it consolidates some of the rally off December's low. The mid range close sets the stage for a steady to lower opening on Tuesday. Stochastics and the RSI are overbought but remain neutral to bullish signaling that sideways to higher prices are possible near term. If February extends the rally off December's low, the 75% retracement level of the 2011 decline crossing at 104.84 is the next upside target. Closes below the 20 day moving average crossing at 99.00 would signal that a short term top has been posted. First resistance is last Wednesday's high crossing at 103.74. Second resistance is the 75% retracement level of the 2011 decline crossing at 104.84. First support is the 10 day moving average crossing at 100.96. Second support is the 20 day moving average crossing at 99.00.

Natural gas closed lower on Monday as it consolidates below the 10 day moving average crossing at 3.058. Stochastics and the RSI are turning bullish hinting that a low might be in or is near. Closes above the 20 day moving average crossing at 3.140 are needed to confirm that a short term low has been posted. If February renews last year's decline, monthly support crossing at 2.409 is the next downside target. First resistance is the 10 day moving average crossing at 3.058. Second resistance is the 20 day moving average crossing at 3.140. First support is last Tuesday's low crossing at 2.936. Second support is monthly support crossing at 2.409.

February gold closed lower due to profit taking on Monday as it consolidated some of the rally off December's low. The low range close sets the stage for a steady to lower opening on Tuesday. Stochastics and the RSI remain neutral to bullish signaling that sideways to higher prices are possible near term. Closes above the reaction high crossing at 1643.70 are needed to confirm that a low has been posted. If February renews the decline off November's high, July's low crossing at 1482.60 is the next downside target. First resistance is last Friday's high crossing at 1632.30. Second resistance is the reaction high crossing at 1643.70. First support is December's low crossing at 1523.90. Second support is July's low crossing at 1482.60.

Could Crude Oil Prices Intensify a Pending SP 500 Sell Off?

Could Crude Oil Prices Intensify a Pending SP 500 Sell Off?

Last week we received reports that the unemployment rate in the United States was improving markedly. In addition, sentiment numbers were released that confirmed my previous speculation that market participants were becoming more and more bullish as prices in the S&P 500 edged higher. The exact numbers that came in demonstrated that bullish sentiment had not reached current lofty levels since February 11, 2011. The table below illustrates the most recent sentiment survey:

Chart Courtesy of the American Association of Individual Investors

Clearly investors are growing considerably more bullish at the present time.  The bullishness being exhibited by market participants is rather interesting considering the notable headwinds that exist in the European sovereign debt markets, the geopolitical risk seen in light sweet crude oil futures, and the potential for a recession to play out in Europe.

To further illustrate the complacency in the S&P 500, the daily chart of the Volatility Index is shown below:

The VIX has been falling for several weeks and is on the verge of making new lows this week. If prices work down into the 16 – 18 price range a low risk entry to get long volatility may present itself. For option traders, when the VIX is at present levels or lower there are potentially significant risks associated with increases in volatility.

My expectations have not changed considerably since my article was posted last week. However, I continue to believe that the bulls will push prices higher yet in what I believe could be the mother of all bull traps. Let me explain. As shown above, we have strong bullish sentiment among market participants paired with general complacency regarding risk assets.

As I pointed out last week, my expectation if for the S&P 500 to top somewhere between 1,292 and 1,325. A lot of capital is sitting on the sidelines presently and if prices continue to work higher I suspect that a move above the 1,292 price level will trigger a lot of long entries back into stocks or other risk assets.

We could see prices extend higher while the “smart” money sells into the rally. Retail investors and traders will point to the inverse head and shoulders pattern on the daily chart of the S&P 500 and the breakout above the key 1,292 price level. The pervasive fear of missing a strong move higher will help fuel long entries from retail investors.

At the same time retail investors begin buying, a lot of committed shorts will be stopped out if prices push significantly above the 1,292 area or higher toward the more the obvious 1,300 price level. Thus, there will be few shorts to help support prices should a failed breakout transpire. A perfect storm could essentially be born from the lack of shorts to hold prices higher paired with the trapping of late coming bulls.

The daily chart of the S&P 500 Index below illustrates what I expect to take place in the next few weeks:

I want to reiterate to readers that it is not totally out of the question that the 1,292 price level could hold as resistance or that we could roll over early this coming week. Additionally a breakout over 1,330 will certainly lead to a test of the 2011 highs around the 1,370 area.

If the S&P 500 pushes above the 1,370 area we could witness a strong bull market play out. Ask yourself this question, what reasons could produce such a rally and what are the probabilities of that outcome transpiring in the next few weeks?

Obviously earnings season is going to be upon us shortly and if earnings come in below expectations a potential sell off could intensify. Furthermore, economic data in Europe continues to weaken and slower growth appears to be manifesting within the core Eurozone countries like Germany and France. If most of Europe plunges into a recession, deficits will widen beyond economic forecasts and the strain in the sovereign debt market of the Eurozone will increase dramatically.

One key element that many analysts are not even discussing is the potential for higher oil prices to present additional economic headwinds for developed western economies.

Clearly the situation in the Middle East is unstable, specifically what we are seeing taking place in the Strait of Hormuz involving Iran. If a “black swan” event occurs such as a military conflict between the United States and Iran or Israel and Iran the prices of oil will surge.

In a recent research piece put out by SocGen, nearly every scenario that is referenced involves significantly higher oil prices. According to the report, the Eurozone is considering the banning of imported Iranian oil which could cause Brent crude oil prices to surge to a range of $120 – $150 / barrel according to SocGen.

The other scenario involves the complete shut down of the Strait of Hormuz by Iran. If this shutdown were to persist for several days the expectation at SocGen for Brent crude oil prices is in the $150 – $200 / barrel price range.

Clearly if either of these two scenarios play out in real time, the impact that higher oil prices will have on European and U.S. economies could be catastrophic.

The daily chart of light sweet crude oil futures is shown below:

I want readers to note that I am not suggesting that oil prices are going to rise or fall, just outlining the report from SocGen about where they expect oil prices to go should either of the two scenarios presented above play out. If oil prices were to work to the $125 / barrel level and remain there for a period of time, I would anticipate a very sharp decline in the S&P 500.

Currently there are a lot of headwinds for bulls, some of which could persist for quite some time. I intend to remain objective and focus on collecting time premium as a primary profit engine for my Options Trading service.

Once I see a confirmed move in either direction I will get involved. For now, I intend to let others do the heavy lifting until a low risk, high probability trade setup presents itself. Risk is increasingly high.

Get these weekly reports and trade ideas free here at my Option Signals Website

JW Jones

EIA: U.S. Refineries and Blenders Produced Record Amounts of Distillate Fuels

Source: U.S. Energy Information Administration, Weekly Petroleum Status Report.
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U.S. refiners produced historically high volumes of distillate fuels (a category that includes both diesel fuel and heating oil) and motor gasoline in 2011. By fine-tuning their production mix, refineries consistently set record levels of distillate production, most recently topping 5 million barrels per day (bbl/d) for the weeks ending December 2 and December 16, 2011.

In 2011, weekly distillate production was above the five-year historical range 25 times, and ranked second highest an additional 19 times. Finished motor gasoline production was robust over the same period, but was slightly more in line with production volumes at comparable times of year since 2006.

Because of its chemical composition, crude oil run through a refinery typically yields roughly twice as much motor gasoline as distillate fuels. Therefore, regardless of economic or other incentives, refiners cannot completely stop making some finished petroleum products in favor of others. However, by adjusting downstream processes and the types of crude oil used, refineries can optimize production to fine-tune the balance of their finished products output. For much of 2011, refiners saw favorable margins and robust global demand for distillate fuels. In order to benefit from these trends, refineries:

• Increased crude runs to maximize overall output. This explains why both motor gasoline and distillate fuels production levels are high relative to the five-year historical ranges.
• Shifted production mix. This explains why the distillate fuels production levels exceeded historical ranges in more weeks than motor gasoline production did.
• 
  

Since early October, the spot price for ultra-low-sulfur distillate fuel oil rose, while the spot price for motor gasoline (as measured by New York RBOB spot prices in the chart below) declined, widening the spread between these two petroleum product prices. On November 14, 2011, the spot price for ultra-low-sulfur distillate was nearly 65 cents per gallon higher than the spot price for RBOB. The spread between these product prices had not been more than 60 cents per gallon since November 2008.

Source: U.S. Energy Information Administration, based on Bloomberg.

Note: Ultra low sulfur distillate spot prices shown as New York ultra low sulfur distillate spot prices; motor gasoline prices reflect New York RBOB spot prices.

Along with high domestic prices, strong international markets for distillate fuel oils have spurred increased production. In the United States, refineries have typically optimized production for finished motor gasoline to meet high U.S. demand. European refineries, on the other hand, tend to produce higher percentages of distillate fuel oils, as diesel is used more broadly there for transportation.

 Due to crude supply disruptions to European refineries for much of this year, the region has imported more finished products. Weekly U.S. gross distillate export estimates (bound primarily for European and South American markets) were at record levels in the fourth quarter of 2011, topping more than 0.9 million bbl/d in October and November, and exceeding 1 million bbl/d in December.

Robust global distillate demand has led to a significant inventory draw, despite heightened U.S. production. From the end of September to the end of December, U.S. distillate inventories fell by more than 13 million barrels.

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ONG: Crude Oil Weekly Technical Outlook For Sunday Jan. 8th

Crude oil rose further to as high as 103.74 last week but failed to sustain above 103.37 resistance and retreated. Initial bias remains neutral this week for some consolidations first. Nonetheless, near term outlook will remain bullish as long as 98.30 minor support holds. We'd expect rise form 74.95 to resume sooner or later. Above 103.74 will target 114.83 key resistance next. Though, break of 98.30 will dampen this bullish view and turn bias back to the downside for 92.52 support instead.

In the bigger picture, recent development indicates that pull back from 114.83 was completed at 74.95 already and medium term rally from 33.2 is not finished yet. We'd tentatively treat rise from 74.95 as resuming of such rally. Sustained break of 114.83 will target 61.8% projection of 33.2 to 114.83 from 74.95 at 125.40. On the downside, though, break of 92.52 support will indicate that correction pattern from 114.83 is going to extend further with another falling leg to 74.95 and below before completion.

In the long term picture, crude oil is in a long term consolidation pattern from 147.27, with first wave completed at 33.2. The corrective structure of the rise from 33.2 indicates that it's second wave of the consolidation pattern. While it could make another high above 114.83, we'd anticipate strong resistance ahead of 147.24 to bring reversal for the third leg of the consolidation pattern.

Nymex Crude Oil Continuous Contract 4 Hour, Daily, Weekly and Monthly Charts

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