Learn to Trade – Commodity Overview 21st July
Focus on Oil
The oil market has been range-bound this last week, with neither bulls nor bears gaining control, despite volatile movements in the equity markets. There has been a new sense of independence in the market with a small breakdown in the equity correlation, which has been so relevant of late.
Thoughts from the trading floor
The technical perspective still appears rather neutral in the short -term, with a large value area being built from resistance of $78.16 to support $75.21/25. The market will be looking for a break either side of this key range for the next principal direction. Bears once again thwarted attempts at a break above $78 but still have a lot of work to do to gain the upper hand. They will be looking to break the initial downside barrier of $75.21; if breeched the next target will be $74.52, then $74.53 and $71.09. The wider picture still continues to point to bulls being in control, with a value area being built for the next higher assault. A fracture of $78 should lead to a bullish carry-through, with the next major level of resistance at $79.38, If this level fails, it will be open ground for the bulls and with momentum firmly back in their court, a powerful surge to $80.50 is highly likely.
Last night the American Petroleum Institute reported that US oil inventories posted a drop of -241 barrels last week. This compares to the analyst estimate for the DOE number of -5058K barrels. The API gasoline also fell -412K as opposed to the estimate for the DOE number of 1601K. With such a divergence between the DOE estimates and the API number, we anticipate the DOE release today to show a number outside of its expected range and this could lead to instability in the market.
Contracts roll-over and light volume in expiring contracts, helped with a potential 40% chance of a new tropical cyclone in Gulf of Mexico, pushed oil contracts higher on Tuesday. Oil markets have lost some of their correlation with equities over the last week and this is seen by many as a response to the reoccurring supply issues of the last few weeks. In the broader picture, traders still remain uneasy about the health of the expected global recovery, particularly in Europe, affecting oil demand in the coming months. Eyes will also be on China to see whether their economy can still lead the global recovery. According to the International Energy Agency, China overtook the U.S. as the world’s biggest energy user last year and recent patterns indicate they may surpass the U.S. as an oil importer within a decade; sooner than the IEA expects.
Bull View
Bulls will be looking to hold their ground. A break above $78.16 could signal the beginning of a new higher leg in the market.
Bear View
Bears will continue their resilient defence of the $78 region and regroup enough to put a potential move into $75.21.A support break here would confirm their bearish dominance.
Futex View
We are still bullish on the oil market with the show of remarkable resilience to the equity sell-off on Friday. We believe the market still has a bullish momentum behind it, both technically and fundamentally.
Tags: API, bear, Bearish, bond, Bond Futures, bonds, bull, Bullish, China, currency, doe, equities, equity, futex, Oil, US
