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Energies

Crude Oil and Related Spreads at Critical Levels

Posted 05/16/2019 11:40AM CT | Michael O'Donnell

As of Thursday morning, the June crude oil market is trading slightly over $63 per barrel as the market has weighed bearish developments on trade between China and the United States and bullish geopolitical tension in the Middle East.

Wednesday’s EIA report showed a build in crude inventories of 5.4 million barrels and draws in gasoline and distillates.  The EIA report for this week should bode well for refiners who are already operating at 90.5%, with strong gasoline prices and summer driving season imminent.  Also, of interest for the crude market are WTI-RBOB and WTI-Brent trading at elevated levels, typically bullish for energies.

Moving forward, a number of outside factors will determine the direction of the market as the geopolitical tension has provided resilience to this market in the face of bearish factors including no trade deal.

Technically, as seen in the chart below, shorter 50 and 100 DMA are sloping upward, and the 200 DMA could turn that direction as well should the upper trendline be breached.  Equally possible, should the risk off demand environment return with recent consolidation and the lower trendline being breached there could be considerable downside.

This month’s test of $60 has held for the time being and would be a key level to monitor in addition to the 200 DMA at $60.62.  If, these levels continue to hold, especially with the spreads previously mentioned at elevated levels, there could be more upside, especially with a catalyst such as further Middle East escalation or positive developments on U.S. Chinese trade.

Crude Oil Jun ’19 Daily Chart

Crude Oil Jun '19 Daily Chart

Michael O'Donnell

Mike started his career in the markets on the floor of the Chicago Board of Trade as a trade checker for a local market maker in the Dow Futures pit. This led to interning with an independent introducing broker and going on to work with a number of market participants including: speculating clients, hedge clients, introducing brokers, futures commission merchants, commodity trading advisors, proprietary traders, trading educators, system creators, and a number of international financial market participants.