03/18/2014 11:25am CDT
May oil finally started its decent lower. (See my prior eView article dated 3-4-14) After May oil hit a high of $104.48 on March 3 oil has fallen to a low yesterday of $97.00. Last Monday, 03/10, May oil really started to sell off, now the market appears to be consolidating at these levels. The question still remains where does oil go from here? I still believe oil will move lower over time but not without a fight. Current oil stock piles still appear ample and have been confirmed by several consecutive weeks of builds. In addition, total US crude oil production has averaged 7.5 mill barrels per day in 2013. That's aprox 967,000 barrels per day higher than 2012 and the highest level of US oil production since 1989. In December 2013, US crude oil production reached 7.9 million barrels per day, according to EIA's recently released December 2013 Petroleum Supply Monthly, that's an increase of 785,000 barrels per day (11%) compared with December 2012. As one can see the US is very capable of increasing its oil production even under an administration that hasn't been exactly friendly to big oil.
Economic data still continues to be a mixed bag both here in the US and globally. The growing unrest between Russia and Ukraine hasn't helped oil at all recently, initially we saw a pop but traders quickly realized it appears to be a non-event. Crimea has voted and Russia has taken action while the US and the rest of the world sit by doing nothing – no surprise. The US and EU have committed to economic sanctions against Russia, which appear to mean very little to the Russians, and in reality what exactly are they going to do? As long as Russia takes no further action against Ukraine I suspect little to no impact on the price of oil.
Short-term technical indicators still appear neutral to slightly oversold to me. At these levels the market looks to be consolidating. So far today the market is an inside day, generally viewed as a sign of strong market consolidation. In addition, yesterday's low of $97.00 a barrel happened to be right at about the 200-day moving average. The question remains how to play oil to the short side? I believe one way may be through a bear put ratio spread specifically buying one near the money put and selling three deeper out of the money puts . Using this type of strategy traders don't really get "hurt" if the market should rally, BUT it does give you the potential to play oil to the downside – please call me for more details.
If you'd like to learn more about futures trading or the energies market specifically, please contact Mike Sabo at 312-373-5248 or firstname.lastname@example.org.
May '14 Crude Oil Daily Chart
Source: RJO Vantage