This caused a huge upswell in futures that amounted to a 2.9% rise. August settled at the highest level in 15 months. The surprise draws in the DOE inventories precipitated the huge rise. Crude drew 9.8M barrels, gasoline drew 2.6M barrels, and just as important, Cushing drew 2.6M barrels. This meant that any market makers that were short were forced to bid the backwardation higher, which made for a depressing day for them. After 2 pm, when the FOMC minutes came out, crude oil pared its gains on the news that officials are divided regarding when to start tapering bond buying.
OPEC’s review of global oil demand was a bullish ingredient for the market. They see demand rebounding by 1M b/d next year, but warned about the possibility of geopolitical risk remaining in play. The OPEC outlook for pickup in demand was consistent with the Fed view for 2014, which calls for stronger growth.
Daily Moving Averages: 21, 55, & 100: 98.27, 95.85 , 94.44
Weekly Moving Averages: 21, 55, & 100: 94.39 , 92.18 , 93 .55
Those that were short anything related to August were bugs on the windshield of the market Wednesday.
- The sharp draw in the DOE inventories of nearly 10 million barrels had the bears running for cover any where they could find it.
- Option market makers that sold calls last week at lower volatility levels found their Gamma exposure needed to be exited.
- This market is not likely to correct significantly until August is off the board.
- Aside from inventory levels, tropical storms are a factor in traders psychology as the hurricane season approaches.
- Although It appears as if August did complete a leg to the upside at 106.66, it is only likely to give way to a correction for the early part of Thursday.
- There will be initial support at 105.60 to 105.35. The minor pivot is 104.90.
- We are a buyer of the dip.
- This will be at the 105.40 level with a protective stop below 104.90.
- From this setback August will then make its way to 107.10 to 107.30.
- Ultimately however the objective is 108.50 to 108.75.
Daily Moving Averages: 21, 55, & 100: 104.41 , 103.71 , 105.51
Weekly Moving Averages: 21, 55, & 100: 106.08 , 108 .37, 110.14
It appears that August completed a leg to the upside Wednesday.
- While this is likely to give way to a minor correction, the trend will stay intact for another run later in the week or early next week.
- Although there is minor support at 107.50, the strong support level for this pattern is 107.10 to 106.90. The pivot is 106.75.
- The key pivot to the intraday chart is 104.90, but it is probable the above mentioned support zone holds.
- We are a buyer of the dip. This will be at 107.10. The stop will be placed below 106.85
- With a break of 108.66 August will stretch to 109.50 to 109.75. However, the ultimate objective for this phase is 110.60 to 111.00.
- Aside from the factors supporting WTI, the Middle East and North African situations will impact this market more quickly than that of WTI were it not for the squeeze on the spreads.
Daily Moving Averages: 21, 55, & 100: -4.09, -4.52 , -5.76
Weekly Moving Averages: 55, 100, & 200: -8.07 , -11.70 , –16.24
All those banks and brokerages that told their clients to sell the arb because oil is plentiful have egg on their face.
- Unfortunately their clients are road kill.
- Although there may be a mild pull back from the -1.65 to -1.50 zone, the pattern is not yet complete.
- The sharp draw down in Cushing, 2.7 mb, exacerbated what was already a squeeze play.
- Nevertheless, August is overbought and a correction can be expected.
- However, we will look to buy the dip.
- August will have an upside objective of -1.70 to -1.50.
- Although we expect consolidation from that point, a fifteen minute settle above -1.50 will signal an advance above -1.00.
- We will look to swing long with a drop to -3.00. The pivot to this position is -3.35.
Daily Moving Averages: 21, 55, & 100: 2.8258, 2.9292 , 2.9057
Weekly Moving Averages: 21, 55, & 100: 2.302 , 2.8813 , 2.8758
We were bullish for Wednesday, but did not see this severe a move higher.
- However, one of the supporting factors is the train derailment in Canada.
- The tracks have been damaged considerably and that was bringing crude to the Irving refinery.
- This is a largely a gasoline production facility and will impact the East Coast supplies.
- The summer driving demand also has fund money rolling into the market.
- While it appears that August did complete a leg higher, more upside is likely following a minor dip.
- The support for the retrace will hit the chart at 2.9650 to 2.96. This carries a pivot of 2.9540.
- We are a buyer of the dip. This will be at 2.9615. the stop placed below 2.9540.
- The key pivot to the daily chart is a daily settle below 2.9275, but we think this is unlikely.
- August has an objective of 3.0450 to 3.50 for this next upswing.
Daily Moving Averages: 21, 55, & 100: 2.443, 2.543 , 2.508
Weekly Moving Averages: 21, 55, & 100: 2.509 , 2.444437 , 2.407
Our forecast called for August to see 2.44 for the second time.
- With the daily settle above this mark August is signaling continued strength.
- Demand from refiners will be strong in consideration of the inventory draw down and summer driving demand.
- August settled atop a down trend line and appears ready to punch through.
- If this occurs the initial target is 2.475 to 2.48.
- The key upside pivot is a daily settle above 2.48.
- This model is intact as long as Aug holds 2.415, which is the minor pivot.
- The key pivot to the intraday chart is a settle below 2.385.
- We are a buyer of the dip.
Daily Moving Averages: 21, 55, & 100: 2.9228 , 2.8981 , 2.9176
Weekly Moving Averages: 21, 55, & 100: 2.8310 , 2.9865 , 2 .9970
Although August participated in the rally it remains the weak link to the complex.
- This is largely due to seasonal influences as well as refiners pushing the pedal to the metal with increased runs.
- Hence the reason for the relative weakness.
- Nevertheless, August will continue to follow crude higher albeit in truncated fashion.
- The model calling or higher prices is based on the pivot of 2.9660 holding before a new high is seen.
- We are in a buy the dip mode, but feel there are better opportunities elsewhere in the complex.
- August is likely to stretch to 3.0250 to 3.03 as an initial objective.
- With a five minute settle above 3.0350 momentum will increase.
- That will usher in a rise to 3.07 to 3.0750.
Daily Moving Averages: 21, 55, & 100: 3.725 , 3.929 , 3.887
Weekly Moving Averages: 21, 55, & 100: 3.857 , 3.458, 3.241
The outlook for Wednesday cited a negative bias.
- While this was based on 3.7650 remaining intact, an early morning run to the 3.79 area was seen before regular trading hours.
- This was likely due to the well leak in the Gulf, but as we stated in last night’s report, it was not a huge producer.
- Chantal is likely to be a non-event for any production. In fact the storm has not yet organized though some forecasters are naming the storm before hand.
- The inventory outlook for Thursday is for a build of 82 BCF.
- We continue to see this pattern with a negative bias. This will be confirmed with a break of the minor pivot at 3.625.
- August will have initial resistance for a bearish outlook at 3.73 to 3.75. The pivot is 3.79.
- If the downside pivot at 3.625 is busted August will slide to test the recent contract low at 3.256.
- We are neutral of this market for Thursday.