Prices were well supported overnight as yesterday’s API data showed a larger than expected 4.5 mb draw from crude oil stocks. Hope for the current impasse on Chinese trade also crept back into the market with negotiators set to return to the table early next week. Positive payroll numbers this morning added a further boost to prices as the crude rose by more than $1.50 early in the session.
A 312k increase in nonfarm payrolls was well above estimates at 176k, and seemed to ease the growing fears of an economic slowdown in the US. The equity markets surged higher off the news and the confidence spilled over to the energy complex. The DOE report, which was delayed due to the New Year’s holiday, was released mid-morning. It showed unchanged levels for crude oil stocks in contrast to the draw reported by the API, while the product stock built as expected, although they came in well above estimates with gasoline up 6.9 mb verses estimates at 2.2, and distillate up 9.5 mb against expectations for a 2.6 increase. Prices pulled back after the release but managed to stay in positive territory to end the week.
While the market awaits signs of compliance with the production agreement it seems to be taking its cue from equities. With our expected resistance in the 47.50-48.00 area violated today the next upside target appears to be the 50.00 level, while support should emerge near 44.50. We continue to favor the long side on pullbacks, with 44.80 as the revised buy level. We are long February RBOB crack at 8.80, risking 7.80, with an upside objective of 11.50- 12.00.
The market showed some signs of downside exhaustion as prices worked higher despite a negative EIA release that came out this morning due to the New Year holiday. The 20 bcf draw was well below revised expectations at 47, but weakness immediately after the release was unable to follow through as prices trudged higher as the session wore on. With some signs in the extendend forecasts that the warm trend may be giving way to a normalization in temperatures, cautions buying interest appears to be returning. Look for the rebound to continue and test the 3.12-3.15 area as the market attempts to fill the chart gap from Monday’s sharply lower open.
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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