In this day and age of the 24 hour news feed, the appetite for content rages un-sated. As a result, in times like these, there is a glut (not just of global crude oil supplies) of supposedly informed opinions on influential industry developments and their consequence on the price action for energy products.
It is understood that any one informed opinion should not necessarily overshadow another informed opinion. However, the analysis of market fundamentals should have less to do with opinion and more to do with fact.
Additionally, that same analysis should attempt to properly weight developments and their requisite affect on the price of tea in China (or in this case, the price of crude and related products). Stories printed and reprinted touting the wild fires in Canada as a rational for a significant increase in bullish activity, or rampant speculation on production reductions at an unscheduled meeting sometime in the future as a real rationale for changing fundamentals is a bit overdone.
The truth about the fundamentals of the crude market currently are that there remains more than enough of the product to justify the lower price action yet the aforementioned rampant speculation has created the specter of production cuts that have scared the market higher. This is very similar to the way that heads of central banks will hint intentionally at future easing when they know good and well that no easing package is imminent in an effort to get the market to organically step in line with their desired price direction.
Similarly, the Saudis will continue to hint at a possible cut agreement at a future meeting even though they don’t have any intention of doing so without unilateral global parity in reduction numbers. Yet the market has done the heavy lifting so far for the Saudi royal family as innuendo has pushed the market higher for weeks now.
It is true that the axiom that ‘the market is always right, therefore how could the information that made it get there be wrong’ holds water, yet even with bearish inventories and recent threats of production increases, here we are trading near several month highs in crude oil. The warning now becomes to throw out the fundamentals to some extent as their reliability in driving price directional is skeptical at best.
What has shaped up rather nicely are the technicals in the crude oil. The recent range trade that has held the market captive for the past several weeks continues to dominate the technicals with a twist higher. The developing channel off the lows remains relatively wide at approximately a seven dollar range. However, the inability for the market to trade below the pivot support at 42.82 (no close or open featured below that level since April 20th with only small violations on an inner day basis twice) would seem to indicate that the market is more comfortable exploring the top half of the ascending channel. The top of that channel, should it occur today, is at 47.85 making it unlikely at this hour. Continue to monitor that resistance as a strong topping point, at least for the short term.
The Gasoline market has not experienced the same irrational exuberance that we have seen in the benchmark crude contract though the price has traded higher obviously. It is interesting that the similar channel that the RBOB has formed has seen a violation through the BOTTOM of the channel over the past two sessions displaying decidedly bearish tendencies.
The strength of crude today though has thrust the gas contract back above the 50 percent mark of the upward trending channel. That relationship of crude to cracked product has been shifty during this rally with the refined commodities not buying the bullishness nearly as much and displaying some strong head fakes in the price action that one should be wary of.
Disclosure: Trading commodity futures and options involves substantial risk of loss and may not be suitable for all investors.