The DeCarley Perspective Trading Newsletter

Time to be a crude oil bull?

 

**There is substantial risk of loss in trading futures and options.

·         Time to be a crude oil bull?

Crude oil futures

Crude oil was one of the hardest hit markets in the aftermath of government pressure on speculators (higher floor broker margins and position limits).  In fact, the July futures contract fell sharply from the $106 level to $96 per barrel without any other obvious catalyst.  However, the fund liquidation was pro-longed by other outside forces, such as the European debacle. 

Internal market fundamentals have not been overly bullish; for instance, further signs of a Chinese slowdown imply softened demand for oil.  Estimates for April seem to be showing the first year over year decline since 2009.  Similarly, the latest IEA monthly report pointed toward an active global production pace; according to analysts, production is currently outpacing demand.  Tomorrow we will get the latest weekly crude oil supply figures.  Going into the number, analysts are expecting a build of about 1.5 million barrels; if so, this would be the largest since August of 1990. 

Although each of these factors justify the nearly $15 correction, it might also signal that most of the "bad" news is already priced in.  In addition, we are still in the midst of what the "Commodity Trader's Almanac" calls the best seven months for crude oil bulls (March through September).  With crude futures reaching technically oversold conditions, and market sentiment at what seems to be overly bearish sentiment levels, it might be time to consider being an energy bull (even if it is just temporary).

The market might not be able to forge a large rally ahead of the inventory release; it is even possible we see some sort of selling into the numbers, or before.  We like the idea of looking for a dip to be bullish.  Support in the July contract comes in at $94.20, $93.50 and again near $92.10.  Futures traders might look at each of these levels as a place to consider the long side (with the most distant support level being most reliable).  Option sellers might be interested in selling deep out of the money puts against a down draft to the noted levels.

 

Crude Oil Futures Market Analysis Chart

 

DeCarley Trading
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**There is substantial risk of loss in trading futures and options.

Past performance is not indicative of future results.  The information and data in this report were obtained from sources considered reliable.  Their accuracy or completeness is not guaranteed and the giving of the same is not to be deemed as an offer or solicitation on our part with respect to the sale or purchase of any securities or commodities.  Any decision to purchase or sell as a result of the opinions expressed in this report will be the full responsibility of the person authorizing such transaction.

 

SEASONAL TENDENCIES ARE A COMPOSITE OF SOME OF THE MORE CONSISTENT COMMODITY FUTURES SEASONALS THAT HAVE OCCURRED OVER THE PAST 15 OR MORE YEARS.  THERE ARE USUALLY UNDERLYING, FUNDAMENTAL CIRCUMSTANCES THAT OCCUR ANNUALLY THAT TEND TO CAUSE THE FUTURES MARKETS TO REACT IN SIMILAR DIRECTIONAL MANNER DURING A CERTAIN CALENDAR YEAR.  WHILE SEASONAL TRENDS MAY POTENTIALLY IMPACT SUPPLY AND DEMAND IN CERTAIN COMMODITIES, SEASONAL ASPECTS OF SUPPLY AND DEMAND HAVE BEEN FACTORED INTO FUTURES & OPTIONS MARKET PRICING.  EVEN IF A SEASONAL TENDENCY OCCURS IN THE FUTURE, IT MAY NOT RESULT IN A PROFITABLE TRANSACTION AS FEES AND THE TIMING OF THE ENTRY AND LIQUIDATION MAY IMPACT ON THE RESULTS.  NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT HAS IN THE PAST, OR WILL IN THE FUTURE, ACHIEVE PROFITS USING THESE RECOMMENDATIONS.  NO REPRESENTATION IS BEING MADE THAT PRICE PATTERNS WILL RECUR IN THE FUTURE.

 

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