The light sweet crude market had a negative session on Monday, albeit a wild one. The market currently sits above the $95 level which looks very supportive, but underneath the $100 level which looks very resistive. Even more granular of a look at this market suggests that the $98 level could become resistance as well. This is simply a confused looking market, and the candlestick itself is negative, but there are long wicks in both directions.
Because of this, we are actually choosing to stay flat of this market and believe that as long as the hurricane is a threat in the Gulf of Mexico, refiners and the whole flow of crude oil in North America could throw a monkey wrench in the way that a lot of these markets get traded. Granted, the real trouble is going to be in the gasoline markets, but there will be not, fax to the crude oil markets as well. Because of this, we choose not to trade or even “bet” on what the weather will do.
Also, there is wide speculation that the US government will release the Strategic Petroleum Reserves in order to try and combat a spike in crude oil prices. This is part of what has been keeping a lid on this rally. However, there is little to suggest that crude oil is hard to be found. In fact, we can be said that we are oversupplied of it at the moment, and at this point in time we really need to see gasoline inventories rise more than anything else. Adding to all of the confusion is the fact that the world’s second largest oil refinery is currently on fire in Venezuela.
Looking forward, we think that the market will also be watching the speech by Federal Reserve Chairman Ben Bernanke on Friday for hands of quantitative easing. If there is no hint of quantitative easing, the US dollar should get a bid and this could bring prices down in this marketplace. Conversely, if he does suggest that quantitative easing is on the way, we could get a spike in oil prices overall. Because of this, we think that the next few days will be very difficult trading this market, and may actually choose to stay flat until late Friday.