traderkenny
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The Energies Pit Review
By PitGuru Daniel Cronin
Oil had a pretty wild ride, dropping last week in the June contract to $81.50 before gaining back its losses to settle relatively unchanged at $85.12. For a second, it really looked like this market would liquidate to $80 and try and break there, but it snapped higher on Thursday and Friday as housing numbers increased its highest since 1963 which resulted in a rally from $83 to $85. The main story in this market, and the most puzzling, is the reaction to the WTI spreads and how it is having virtually no effect on the flatprice. Contango in the front contracts is at highs the market hasn't seen for at least 5 months with Jun/July trading at -195 and the roll in June/Aug trading at a mind boggling - 325 as inventories continue to climb. According to a Bloomberg story on the subject, “The premium for further-out delivery, (contango), mirrors the expense of stockpiling. It emerged after inventories jumped+5.8 percent in the week ended April 16 to 34.1 million barrels in Cushing, Oklahoma, where traders make deliveries for futures.” 1
This Cushing number is the big number that traders watch on the Wed. DOE report and it has been rising steadily widening the spread values. So if these spreads are getting hit as hard as they are and inventories keep increasing this means it would be bearish for flatprice right? If I told you the Euro/USD would be trading at $1.33 from $1.52 this would be bearish for flatprice right? Wrong...... Crude is off its high of the year by $2 and has only been rallying since the spreads have started to weaken. It is very hard to comprehend how Crude is not falling here but at the same time you have investors saying how the recovery of the global markets is getting stronger lifting the appeal to buy Oil, Gasoline, Heating Oil etc...I still feel as though this crude market is overbought up here above $80 and should be values somewhere in the $70's but traders keep buying on the dips whenever there is a big down day.
Natural Gas had a great week last week rallying to above the resistance of $4.25 as the inventory report came out better than expected on Thursday lifting the market higher. May is now over $4.30 and looks to be headed higher as the price continues to rally. It does seem that Natty has built a nice bottom at the $3.80 are and I expect this market to trade into the $4.40 level this week.
1. http://www.bloomberg.com/apps/news?pid=20601087&sid=ayqOVAEyKd_w&pos=6
By PitGuru Daniel Cronin
Oil had a pretty wild ride, dropping last week in the June contract to $81.50 before gaining back its losses to settle relatively unchanged at $85.12. For a second, it really looked like this market would liquidate to $80 and try and break there, but it snapped higher on Thursday and Friday as housing numbers increased its highest since 1963 which resulted in a rally from $83 to $85. The main story in this market, and the most puzzling, is the reaction to the WTI spreads and how it is having virtually no effect on the flatprice. Contango in the front contracts is at highs the market hasn't seen for at least 5 months with Jun/July trading at -195 and the roll in June/Aug trading at a mind boggling - 325 as inventories continue to climb. According to a Bloomberg story on the subject, “The premium for further-out delivery, (contango), mirrors the expense of stockpiling. It emerged after inventories jumped+5.8 percent in the week ended April 16 to 34.1 million barrels in Cushing, Oklahoma, where traders make deliveries for futures.” 1
This Cushing number is the big number that traders watch on the Wed. DOE report and it has been rising steadily widening the spread values. So if these spreads are getting hit as hard as they are and inventories keep increasing this means it would be bearish for flatprice right? If I told you the Euro/USD would be trading at $1.33 from $1.52 this would be bearish for flatprice right? Wrong...... Crude is off its high of the year by $2 and has only been rallying since the spreads have started to weaken. It is very hard to comprehend how Crude is not falling here but at the same time you have investors saying how the recovery of the global markets is getting stronger lifting the appeal to buy Oil, Gasoline, Heating Oil etc...I still feel as though this crude market is overbought up here above $80 and should be values somewhere in the $70's but traders keep buying on the dips whenever there is a big down day.
Natural Gas had a great week last week rallying to above the resistance of $4.25 as the inventory report came out better than expected on Thursday lifting the market higher. May is now over $4.30 and looks to be headed higher as the price continues to rally. It does seem that Natty has built a nice bottom at the $3.80 are and I expect this market to trade into the $4.40 level this week.
1. http://www.bloomberg.com/apps/news?pid=20601087&sid=ayqOVAEyKd_w&pos=6
