Crude Realities For Oil Bulls
Today’s Spotlight Market
Large Oil traders are taking advantage of the bear market in Crude Oil and the widening contango in the term structure to attempt to take physical delivery of Crude Oil and sell deferred futures in the hopes of locking in a profit. The biggest hurtle to this strategy is finding enough storage for the Oil and at the right price so that the spread between spot Crude and deferred futures is enough to overcome storage and delivery charges. The April 2015/December 2015 WTI spread has moved from a $5.00 December premium to over a $9.00 December premium since the start of the year. The widening of the contango is what is enabling this speculative trade as the larger the spot market discount to deferred futures, the more attractive this trade becomes. ?
Fundamentals
Here?s a problem the U.S. never thought it would have?too much Crude Oil! However, that appears to be the reality, as storage tanks in Cushing Oklahoma, the delivery point for the NYMEX WTI futures, are filling rapidly with over 51.5 million barrels of Oil in storage as of last week, which is up just over 2.3 million barrels for the week. In fact, we are quickly approaching record storage levels throughout the U.S. A lack of storage capacity could force Oil prices even lower than current levels, especially if producers do not rein-in production and are forced to discount the price to persuade end-users to take the oil off of their hands. Tight U.S. storage has also contributed to a widening price spread between Brent and WTI Crude. Since January, when the Brent/WTI spread was trading near parity, we have seen the spread widen to an over $10 Brent premium due mainly to the glut of Crude in the U.S. While analysts expect U.S. crude production to eventually contract enough to curtail supplies, it may take Crude prices moving below $40 to finally see U.S. production slow and oil imports decrease enough to halt the price decline. Otherwise it may be a ?Crude, Crude summer? for Oil bulls.
Technical Notes? -? View Today’s Chart
Looking at the daily chart for April WTI crude, we notice prices forming a consolidation pattern following the steep price decline that begin last summer. Since January, April Crude has been trading between 55.00 on the upside and 44.00 on the downside as both Oil bulls and bears fight for control. Currently, Oil bears are holding the upper-hand as prices are trading below the 20-day moving average and the 14-day RSI has weakened with a current reading of 40.10. The next major support level is found at the January 29 low of 44.37, with resistance seen at The February 3 high of 55.05.
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