Crude Oil finally broke resistance at 58.30 this past week and has begun its march lower. The next level of support shows up at 56.34 and should be tested ahead of the next EIA inventory report on Wednesday. We are currently holding…
…Puts for February and will probably hold them until we see trading closer to the 55.00 mark.
Heating Oil showed some independence early on after the inventory data reflected a slight draw on Distillate supplies in the place of builds that were expected by most analysts. That independence was short lived as the Natural Gas inventories came in very bearish on Thursday and temperatures across the map continue to be more like spring than winter.
While the picture may seem bearish across the board, upon closer inspection the numbers spell possible trouble down the road. For instance the Demand for Unleaded is back on the rise in a big way with prices falling over 35% over the past few weeks. Meanwhile we are receiving record imports of refined product, this will eventually stop and we will resume normal import levels and limited refining capacity. Then there is the reality that winter is on its way no matter how late it is. When the temps drop it will be interesting to see how the market reacts considering the current supply levels and the governments commitment to release strategic Distillate reserves if necessary. I personally think this is a market that may be suffering from speculator and media exhaustion but can’t resist a rally on any Bullish news.
Matt Odom / Energy Analyst
Odom & Frey Futures & Options