The complex recovered from overnight weakness as solid buying throughout the day session pushed prices up over 3% intraday in crude oil and products. Levels faded slightly as the day ended with February crude oil settling at 46.54, up 1.13 on the day, and the February RBOB and heating oil up 2.35 and 2.12 respectively.
The early weakness was the result of poor Chinese PMI numbers released overnight, which coupled with news of decreased import allowances for Chinese refiners stoked concerns over a global economic slowdown. Support emerged as the US day session got under way as firming in equities offered initial support, followed by indications that Saudi Arabian crude oil exports had decreased in December in advance of the agreed cuts that were to start in January. Despite the positive session, the increased volatility that we have seen recently with steep price declines minimizes the impressiveness of the bounce.
We remain long February RBOB crack at 8.80, risking 7.80, with an upside objective of 11.50- 12.00. In February crude we would look for resistance to be seen in the 47.50-48.00 area and would favor the long side on pullbacks toward the 43.80 level. The DOE report is scheduled for release on Friday at 10.00 a.m.
Buying interest finally emerged in the natural gas just above the 2.90 level basis February as the market found trendline support from a series of lows going back to December of 2017. Weather reports have remained mild into mid-January and despite today’s uptick another test of this area appears likely near term. This weeks EIA report is expected to show a 64 bcf build against a 5 year average of 107. The report will be released a day late on Friday at 9:30 a.m. due to the New Year’s holiday. We are long the March from 2.85 on Monday’s recommendation, risking 2.79 with an upside objective in the 3.15-3.20 area.
Charts Courtesy of DTN Prophet X
Futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. The views and opinions expressed in this letter are those of the author and do not reflect the views of ADM Investor Services, Inc. or its staff. The information provided is designed to assist in your analysis and evaluation of the futures and options markets. However, any decisions you may make to buy, sell or hold a futures or options ADMIS position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to. The authors of this piece currently maintain positions in the commodities mentioned within this report. Charts Courtesy of DTN Prophet X, EIA.
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