Is Choppy Oil Trade A Sign Of A Near-term Bottom?
Today’s Spotlight Market
Here are the latest inventory figures for energy products from the Energy Information Administration (in million barrels):
????????????????????????? Current???????????? Weekly??????????? 5-Year Ave.
Crude Oil:?????????? 413.06?????????????? +6.33?????????????? 349.10
Distillates:????????? 134.48?????????????? +1.79?????????????? 142.10
Gasoline:??????????? 240.67?????????????? +2.34?????????????? 234.42?????? ?
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Fundamentals
Oil futures traders might be suffering from a case of whiplash as market volatility has increased with large daily percentage price swings becoming the norm the past several sessions. Fundamentals are telling a mixed story with U.S. oil drilling rig counts falling sharply, as Oil producers are starting to curtail spending to deal with current low Crude prices. On the other side of the equation, we have U.S. Oil inventories rising sharply with the Energy Information Administration (EIA) reporting Oil inventories rose by 6.3 million barrels to 413.1 million barrels which is the largest inventory levels seen since EIA weekly data began in 1982.
February is anomalous month in the Oil industry as it is typically the start of the refinery maintenance season as companies gear up to produce more gasoline as well as specialty grades required to meet regional EPA guidelines. So Oil demand usually wanes in February, which has added additional pressure to mounting Crude inventories.
Large speculators continue to remain net-long Crude Oil, with the most recent Commitment of Traders report showing non-commercial traders holding a net-long position totaling just over 324,000 contracts as of January 27. While this is well short of the nearly 500,000 net-long position we saw several months ago, it is still a very formidable long position to be holding in a market that has fallen over 50% the past 6 months.??????? ?
Technical Notes? -? View Today’s Chart
One sign that traders may wish to watch to help determine if Oil prices have reached a near-term bottom is to follow the price action on the term structure for the Crude Futures. Let?s look at a chart of the March 2015 Crude Oil contract versus the December 2015 contract.? In January 2014, Mar 15 futures were trading at a $10.50 premium to the Dec 15 contract. However, this spread has collapsed along with the overall price of Crude and is now trading near an $8.50 March discount to the December futures as more deferred months have moved to a sharp premium to the nearby months in order to encourage the movement on Oil into storage.? A narrowing of the March discount to the December futures could be a signal of improving Crude demand, which would be significant catalyst in Oil prices finally starting to form a near-term bottom. -9.33 looks to be support for the Mar/Dec 15 spread with resistance seen at a -6.20.
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