This morning’s EIA report showed another significant drawdown in crude oil supplies at 6.4 million barrels. Globex July crude oil futures (GCLN17) ran up about $.70 a barrel, up to $49.15 on the news. Frankly, that isn’t an impressive move to the upside on a big drawdown. Perhaps it is muted because of recent bearish news that Libya has ramped up production to 3 year highs, and OPEC compliance numbers are slipping. We have also seen a steady increase in the US rig count over the past 6 months. The US is already on par with the biggest producers in the world. The extension of the production cuts that OPEC announced last week seems to be losing the desired effect.  There are reports that Saudi Arabia is looking to possibly deepen the cuts at the next meeting. This will be a tough sell to the other members. 

These crosscurrents of fundamentals are clearly illustrated in the technicals over the last year. Crude has been hemmed in a $10 range since last June. That is a remarkable feat for one of the more volatile contracts over the past decade. I don’t see an end in sight until there is a major paradigm shift in the supply equation, or a major geopolitical event. Thus, it makes sense to keep trading the range of $45-$55 with protection in place at the edges of the range in the event of market surprise. There is great opportunity in range trades as long as the trader stays nimble. This means trading on a shorter time frame, with profit target and risk clearly delineated before the trade is initiated. Once a breakout occurs, one can shift to a momentum and trending trade in the direction of the breakout.

 

Jul ’17 Crude Light Daily Chart