The DeCarley Perspective Trading Newsletter

Crude Oil, calm before the storm?

  This newsletter was emailed to DeCarley Trading clients on March 25th, 2012

Commdity trading newsletter by DeCarley Trading 

**There is substantial risk of loss in trading futures and options.

**Past performance is not indicative of future results

On the radar:

  • Crude Oil, calm before the storm?

Crude Oil Futures

Crude oil future have traded in a tight trading range for much of March; however, seasonal tendencies suggest the market "should" maintain an overall bullish bias for the next six months.  According to the Commodity Trader's Almanac, the "best six months" for crude oil futures are March through September.  Stats compiled over the last 25 years portray a moderate incline through the summer months and into fall but data taken from the last 5 years suggests a much stronger move.   

According to the EIA, the most recent account of weekly crude inventories was reported to be a little over 346 million barrels.  This is a slight decrease from the previous week and leaves inventories near the "upper limit of the average range for this time of year.  In addition, net daily imports of crude oil are hovering near 8,700 barrels per day.  Each of these factors have offered support to crude oil pricing but haven't lured fresh buyers into the market. 

Although we aren't convinced the long-term fundamentals in crude oil are necessarily bullish at current levels, we do believe the path of least resistance will be higher in the near term.  After all, market pricing is often influenced more by perception than it is reality 

In addition, although there is (arguably) a $15 to $20 premium built into pricing as traders anticipate the possibility of Middle East violence and supply disruptions, there is still a substantial amount of headline risk.  Any inclination of military action in, or at the hands of, Iran could quickly translate into another $15 to $20 gain in crude oil.  Should this occur, it will likely be a great opportunity for the patient bears but in the meantime it is good enough reason to stay away from the market until volatility picks up. 

Quiet trade between $109 and $104 won't last forever.  We'll be looking for a breakout of the range that could bring the May contract to the $113/$114 area (which could happen as early as this week).  Depending on how volatility on both sides of the market looks, we'll likely be interested in selling short strangles and or naked short calls well above the market.  Stay tuned...

 Technical analysis of Crude Oil Futures

DeCarley Trading

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**There is substantial risk of loss in trading futures and options.

Past performance is not indicative of future results.  The information and data in this report were obtained from sources considered reliable.  Their accuracy or completeness is not guaranteed and the giving of the same is not to be deemed as an offer or solicitation on our part with respect to the sale or purchase of any securities or commodities.  Any decision to purchase or sell as a result of the opinions expressed in this report will be the full responsibility of the person authorizing such transaction.

 

SEASONAL TENDENCIES ARE A COMPOSITE OF SOME OF THE MORE CONSISTENT COMMODITY FUTURES SEASONALS THAT HAVE OCCURRED OVER THE PAST 15 OR MORE YEARS.  THERE ARE USUALLY UNDERLYING, FUNDAMENTAL CIRCUMSTANCES THAT OCCUR ANNUALLY THAT TEND TO CAUSE THE FUTURES MARKETS TO REACT IN SIMILAR DIRECTIONAL MANNER DURING A CERTAIN CALENDAR YEAR.  WHILE SEASONAL TRENDS MAY POTENTIALLY IMPACT SUPPLY AND DEMAND IN CERTAIN COMMODITIES, SEASONAL ASPECTS OF SUPPLY AND DEMAND HAVE BEEN FACTORED INTO FUTURES & OPTIONS MARKET PRICING.  EVEN IF A SEASONAL TENDENCY OCCURS IN THE FUTURE, IT MAY NOT RESULT IN A PROFITABLE TRANSACTION AS FEES AND THE TIMING OF THE ENTRY AND LIQUIDATION MAY IMPACT ON THE RESULTS.  NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT HAS IN THE PAST, OR WILL IN THE FUTURE, ACHIEVE PROFITS USING THESE RECOMMENDATIONS.  NO REPRESENTATION IS BEING MADE THAT PRICE PATTERNS WILL RECUR IN THE FUTURE.

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