28th October 2009 Oil Markets Overview
28th October 2009
Commodity Overview
Focus on Oil
Over the last five days oil futures initially pushed higher, printing yearly highs at $81.99 before giving up the gains. This down move was the result of some slight weakness entering the equity space as concerns around Federal stimulus removal circulated.
Thoughts from the trading floor
Oil futures still look technically strong, despite failing to hold onto any fresh gains over the last five days. Crucially they did hold above the highs of the previous consolidation zone at $74.96 reaffirming the breakout. One possible technical formation worth considering is an hourly head and shoulders that appears to have developed over the last few days. The neckline currently is at $77.48 on the Dec contact and the target is around $73.50. If this price was met it would represent a break back below the crucial level $74.96.
Last night the American Petroleum Institute reported that US inventories fell 3532K barrels last week. This compares to the analysts estimate for the DOE number of 1910K barrels. Last week inventories, particularly gasoline, massively undershot analyst’s estimates producing a large bid in the energy markets. This once again highlighted the importance of the gasoline number as week after week it is having a large bearing on oil prices. Analysts’ estimates for gasoline this week are for a 1000k draw down.
On Monday Jose Botelho de Vasconcelos the OPEC president said that they will raise output in December if oil prices reach $100 per barrel, in an attempt to aid the economic recovery. This is unlikely to have a direct effect on trading whilst prices remain around the $80 mark but if we were to see prices push higher it would undoubtedly enter traders’ consciousness and provide the market with some resistance.
Bull View
Bulls will still feel comfortable despite a couple of days of equity weakness, as oil continues to hold above the old consolidation zone. They will be keen to capitalise on this break over the next few weeks and will be targeting resistance at $85 and beyond that the 50% fib level at $89.84.
Bear View
Bears will become more worried the longer the market holds above $74.96. The recent signs of equity weakness will give them hope and a continuation in this move would likely lead to some selling pressure in oil.
Futex View
We believe that oils correlation with the USD and the world equity markets will continue to prove the crucial driver. Over the last couple of days the bout of equity weakness and USD strength did result in oil weakness and we believe this trend will continue over the next five days.
