Are Oil Prices Finally Losing Their Bullish Sheen?
Today’s Spotlight Market
Large and small speculators were aggressively adding to existing long positions in Crude Oil futures the week prior to the nearly 7% sell-off we have seen to start 2014. The most recent Commitment of Traders report showed non-commercial (large speculators and commodity funds) and non-reportable (small speculators) added nearly 20,000 new net-long positions for the past two week ending December31th. This puts the combined net-long position at nearly 400,000 contracts and could add significant weight to a price sell-off should these stubborn bulls finally begin to exit their positions.?? ?
Fundamentals
Crude Oil traders greeted the start of 2014 in a bearish mood as prices have fallen over $5 per barrel for the front month futures since the start of the year. So what is behind the recent selling of a market that has stubbornly ignored bearish news the past several years?
First, we have U.S. Crude Oil inventories running ahead of both the 1 and 5 year averages for this time of year, despite 5 consecutive weeks of inventory declines. However, traders note that most of the inventory draws are due to accounting maneuvers and we may see large storage builds in the next several weeks.
Next, we have reports that a key oil field in Libya has resumed production. Libyan oil production had fallen below 250,000 barrels per day as protests by workers shut down many of the country?s production facilities and ports.
Thirdly, we are starting to see some less than stellar economic data out of China, the world?s second largest consumer of oil. All these factors combined with a very large speculative net-long position held by Crude Oil speculators appear on the surface to be the ?perfect recipe? for a Crude Oil price sell-off. However, as we have seen in 2013,
Oil?s seemingly ?bullish bias? has kept significant price declines in check as commodity funds and speculators reacted to price pull-backs by being aggressive buyers. Whether this trend will continue in 2014 is still unknown, but an increase in price volatility may be in the cards after a rather ?calm? trading environment in 2013.? ?
Technical Notes? – View Today’s Chart
Looking at the weekly continuation chart for Crude Oil futures, we notice the market has been in a general bullish phase since early 1999 when oil prices bottomed just above $10.00 per barrel. Since that time we have seen a major jump in volatility that peaked during the 2008 price rise to record levels only to be followed by a price ?crash? at the height of the global financial crisis in 2009. For the past few years Oil prices have ?consolidated? between $70.00 and $115.00 per barrel with the majority of the time spend between $90.00 and $100.00. Although Oil prices seemed to have a ?bullish bias? in place, we should note that the uptrend line drawn from the 2009 lows is being tested. The market may need to see prices close significantly below this up-trend line, preferably on a monthly basis, in order to draw significant selling pressure, which if it were to occur, could potentially see prices test major support levels near $75.00 per barrel.????
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