Last week’s price action showed good follow through overnight as we entered this morning’s session up by over a dollar in the crude oil and 3 cents in the products. Friday’s highs were taken out early in the morning with February crude pushing up to 49.47 before temporarily losing steam.
There didn’t appear to be an abundance of fresh news as the market continued to react to last week’s positive economic numbers, dovish Fed statements, and the restart of trade negotiations with China that seemed to offer hope for an improvement in the overall economic outlook. Adding to the hopeful tone was the appearance of China’s top trade official at the trade negotiations, as expectations had been that mostly lower level representatives would be present. The equity markets continued to show strength as a mid-morning rally spilled over to the petroleum complex as new highs were again made in the crude oil.
While the market awaits signs of compliance with the production agreement it is tracking closely with the equity markets. The 50.00 level still appears to offer solid resistance, as the market came short of that level during today’s probe higher and the failure lead to a late session sell off. The products have lagged the crude over the last few sessions following the large builds seen last week. This has weakened the February RBOB crack, but we remain in our long position at 8.80, risking 7.80, with an upside objective of 11.50- 12.00.
Prices weakend today as demand forecasts into mid-January were revised slightly lower. Past that point the expectation is for a return to normal and possibly below normal temperatures into month end. With last weeks lows holding support it still appears as though there is some downside exhaustion as trade sees the warm trend having run its course. Another below average draw is in store for this week, with early expectations looking for a 95 bcf withdrawal compared to the 5 year average of 182. We expect buying interest to return for a test of the 3.12-3.15 area as the market attempts to fill the chart gap from early last week.
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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