Crude Oil Market Analysis

Dr. Chen,

Very useful analysis. I notice you focused on the non-commercial, ie funds, posiitons. Don't you think commercials are a better signal? Or is it that the non-commercials are the marginal players and control prices?

 

non-commercials are the "speculative" money.

commercials, to a large extent are taking positions to hedge. if they are long physical (iow, if they are a producer), then a hedge would be to short the market . thus, if the market goes down, they don't lose money on what they have because the increase in value of their short position offsets the loss of value in their physical holdings, and vice versa.

consumers, do the opposite. if you are a company that needs to buy sugar (or oil, or whatever) on a monthly basis over the next year, and you want to protect against a rise in prices, then of course you go long the market.

so, when you look at COT reports, you look at the non-commercials as the "speculative money", iow directional players moreso than the commercials who are not in (as much) to spec, but to hedge.


the non-commercials, for example, if they are short, will be FORCED to cover at some point in a market rise- due to margin calls, or simply puke point.

this is NOT true for the commercials.

 

The sole purpose of a non-commercial to take a position is to profit from the market's directional move, whereas ideally the sole purpose of a commercial is to hedge against the risk associated with market fluctuation, as Crude Oil Market Analysis used AMR as an example on Jan. 25. Therefore, the positions taken by non-commercials are a better indicator of the general market sentiment than that taken by commercials.

Dr. Chen

 

You forgot about the tanker tracker demonstrating that OPEC is in compliance. Well, partial compliance, 700k a day versus the promised 1.2m. That was sending oil up too.

 

Crude Oil Market Analysis (1/29/07)

Today’s market action followed Jan. 29’s Crude Oil Market Analysis when it forecast that “fundamentally, the market risk remains on the upside,” but that “technically, the market looks very weak.”

The market opened Sunday higher and reached an overnight high of $55.95 but could not break $56.00 and steadily fell during the course of the day to close $1.41 lower at $54.01.

The bearish news includes (1) that the Saudi Ambassador to the U.S. called the current oil price “adequate” for both oil-producing countries and oil-consuming countries, and (2) that the National Weather Service forecast that the temperature will gradually rise from below-normal in early February to normal and above-normal from mid-February to March.

As COMA stated on Jan. 23, in the short term the market “has little direction.” Thus any news can cause the market to swing one way, only to be undone the other way by different news later on, as the market has shown since COMA made the forecast on Jan. 23.

Fundamentally, the market is still buoyed by the cold weather in the short term, so the market risk remains slightly on the upside.

Technically, the market needs to hold above $53.00-$53.35 to gather the momentum to have another shot at above $56.00 to test the $57.00-$57.40 resistance.

Strategy: Buy at $53.35 with a stop at $51.85, take profit above $57.50. Sell at $57.20 with a stop at $58.20, take profit below $51.00.

Dr. Chen

For previous Crude Oil Market Analyses, please go to http://energyfutures.blogspot.com/

 

Crude Oil Market Analysis (1/30/07)

Today’s market action followed yesterday’s forecast when the Crude Oil Market Analysis forecast that “fundamentally, the market is still buoyed by the cold weather in the short term, so the market risk remains slightly on the upside,” and that “technically, the market needs to hold above $53.00-$53.35 to gather the momentum to have another shot at above $56.00 to test the $57.00-$57.40 resistance.”

The market held above $53.35 overnight at a low of $53.82 and rose steadily during the course of the day to a high of $57.05, within the forecast range of resistance at $57.00-$57.40, before closing $2.96 higher at $56.97.

As COMA stated on Jan. 23, the market “has little direction,” and then on Jan. 29, “any news can cause the market to swing one way, only to be undone the other way by different news later on.”

The $2.96 rally may be attributed to the bullish news that Saudi Arabia plans to trim output by an additional 158,000 barrels a day starting Feb. 1, even though the news was already known yesterday when the market fell by $1.41. Another bullish news is that the Conference Board's consumer confidence index rose from a revised 110 in Dec. to 110.3 in Jan. to the highest in more than four years since May 2002, even though the increase is by 0.3.

Two other news items, however, are indeed supportive of the market’s bullish trend. One on the supply side is that the oil production at Cantarell--the world's second-biggest oil field in terms of output—fell from 1.99 million barrels per day in Jan. to 1.5 million barrels per day in Dec. last year. As a result, Mexico’s oil production fell from almost 3.4 million barrels per day in Jan. to below 3.0 million barrels per day in December, the lowest rate of oil output since 2000. The other on the demand side is that China has increased the rate of building its stockpile from 70,000 barrels per day in August to 200,000 barrels per day in the past three months, showing that the U.S. is not the only country in the world that takes crude oil supply off the market for its reserve.

Tomorrow’s DOE report is unlikely to alter the current market state of directionless.

The refinery input will continue to drop from 14.9 million barrels per day to 14.7 million barrels per day due to continued refinery maintenance. Crude import, which is notoriously difficult to forecast, probably recover from last week’s 9.8 million barrels per day. If the crude import rises above 10.0 million barrels per day, the crude inventory will build by 2.0 million barrels rather than the Wall Street forecast of 1.2-1.5 million barrels.

Gasoline production will fall slightly from 9.1 million barrels per day to 9.0 million barrels per day due to refinery turnaround. However, the slight decrease in production will be compensated by an increase in import from 911,000 barrels per day to close to 1.1 million barrels per day. As demand remains steady at 9.0 million barrels per day, gasoline inventory will increase 2.0 million barrels rather than the Wall Street forecast of 1.4-1.6 million barrels.

Distillate production will be steady at 3.9 million barrels per day while import will maintain above 450,000 barrels per day. The demand will increase from last week’s 4.0 million barrels per day to 4.3 million barrels per day due to the cold weather, resulting in an inventory draw of 2.4 million barrels, which is within the Wall Street forecast of 2.1-2.6 million barrels.

Fundamentally, the market is still buoyed by the cold weather and the impending OPEC production cut in the next two weeks.

Technically, the market is near the resistance at $57.00-$57.40 and will face stiff resistance at $57.40-$57.50, so the market risk is on the downside.

Strategy: Sell at $57.20 with a stop at $58.20, take profit below $51.50.

Dr. Chen

For previous Crude Oil Market Analyses, please go to http://energyfutures.blogspot.com/

 

I hope this analysis still applies with current price movement, i've taken a short as there was significant short covering at the end of the day, and cl is possibly overbought.

Good analysis, Dr.Chen

 

I would venture to say that much of the buying today was related to Chavez and his usual antics. Hopefully well factored-in by now.

 

The oil rise was due to Bernanke. Think about what higher interest rates do to currency and how that effects oil.

 

good point.

although, US currency dropped 0.7% while oil went up by roughly 10 times that.

Can't deny the correlation.. won't dispute that.