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Energies

Oil Trading Amidst Supply Crunch and Resistance

Posted 11/22/2017 11:49AM CT | Michael O'Donnell

In observing the January crude oil chart below, we notice that the for the better part of the past three months the trade has been bullish, moving from the lower left to the upper right, testing the contract highs after making higher highs and higher lows. In light of the recent fundamentals, this is no surprise, given the factors below. 

Saudi Arabia’s crown prince has consolidated power and succession seems imminent, while the market continues to anticipate a continuation of the OPEC production quota limit. There was a disruption in the Keystone Pipeline, which has affected supply in the short term and may have possibly affected the approval of Keystone XL expansion. There is also news of Venezuela not exporting, displaying their dire situation and further supply shortages. Stock markets making all time highs and the highest holiday travel numbers in years also lend to the bull camp. Even this morning’s EIA number, which had a draw of 1.9 million barrels as opposed to previous week’s report’s build of the exact same amount, led to a brief 40 cent per barrel sell off. This has been completely recovered from as of Wednesday morning, less than 30 minutes after the report, with the contract trading near the day’s and contract’s highs.

In the interest of weighing both sides of the market, one may also consider the contrarian case given all of these bullish factors as well, especially considering holiday profit taking and possible mean reversion and retracement. There is also the chance that the $60 level may act as support as many believe this is where refineries and oil sands become more incentivized and profitable, possibly affecting OPEC quota.

 

Jan ’18 Crude Light 60 min Chart

Jan '17 Crude Light 60 min Chart

Jan ’18 Crude Light 240 min Chart

Jan '17 Crude Light 240 min Chart

Jan ’18 Crude Light Daily Chart

Jan '17 Crude Light 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.