Border Security Fueling Optimism in Crude Oil

February 12, 2019 10:32AM CST

As of 9:00 AM CST, March crude oil is trading at $53.64, up $1.24 up roughly 2.2%.  A  few headlines are driving the market this morning, the main one being Saudi Arabia reassuring that they will follow through with their pledged production cuts.  They are saying that they will cut production in March by 500,000 bpd more than they originally pledged. Another factor adding  fuel to this rally is optimism on a boarder security deal being made prior to the deadline. While this is far from a done deal, the tentative deal reached shows signs that even if there is a second government shutdown, that both sides are willing to compromise. Inventories are reported for API at 3:30 PM today and EIA tomorrow at 9:30 CST.  I expect these numbers to continue the rally to a psychological resistance level of $55.00.  Option expiration is on 2/14/19 with most of the open interest at the $55 strike, with a combined open interest on the puts and calls of 36k contracts.  I am a firm believer that on expiration the market price gravitates to the strike level of the most combined option open interest.  From the October highs to the December lows, we retraced 38% on the nose and pulled back.  I expect the price to at least test the 50% retracement mark just above $55, now that it appears a bottom has formed.  Support comes in at 51.77 and 51.34 with resistance at 54.54 and 55.68.  A break out above $55.23, I would expect a push to $58-59. 

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Crude Oil Mar '19 Daily Chart

Crude Oil Mar '19 Daily Chart

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