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Crude oil futures continue to test the $100 per barrel level, even touching $102 this week -- following closely to the U.S. equity markets. Regular gasoline blendstock for oxygen blending (RBOB) futures are following closely to crude oil, waiting for the driving season to begin -- after what seems like a never-ending winter throughout the U.S. Natural gas continues to show strength as another winter storm blankets the Midwest.
The market has broken above $100 four times in the past week, and even managed to close above $100 on Tuesday. The market seems to be looking for reasons to rally, although fundamentally it seems the bullish news is waning. Turkish troops invaded the northern part of Iraq to try to root out Kurdish rebels. Though the market reacted strongly at first, it seems the incursion will be rather quiet, and supported by both the U.S. and Baghdad. This week saw another increase in crude stocks. Additionally, the Producer Price Index in the U.S. came out much higher than expected, indicating inflationary risks. Federal banks around the world are facing weaker economies, which
in turn should indicate falling crude oil prices. However, the crude market has shown an increasingly strong inverse relationship with the U.S. dollar. As the dollar makes new lows, crude oil makes new highs. It is rumored that the weaker the U.S. dollar gets, the more enticing it is for oil producers to charge euros rather than U.S. dollars. TV personalities like to talk about crude oil making new highs, and right now it seems the markets are giving the people what they want. At some point, it will run out of steam and we will see another opportunity to sell when it pulls back. But that might not be until we see $103 trade, basis April. |
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RBOB is trading similarly to crude oil. And interestingly, the volume increases as the market drops and volume drops as the market price increases. This is typically an indication of a trend lower. However in this case, the long-term trend lines still point upward, along with crude. RBOB typically sees a spike around Memorial Day in the U.S., coinciding with the beginning of "driving season." But until then, we are likely to see trading very closely tied to the crude oil.
April Crude Oil
If you cannot view the April Crude Oil chart, go here. |
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Natural gas left a textbook inverse head and shoulders last week, and has continued to trade higher since breaking through the "neckline." The theory behind the inverse head and shoulders is that the market first makes a move lower before correcting, creating the left shoulder. The market then makes new near-term lows before correcting again, creating the head. And then the market loses momentum in the downtrend, failing to fall below the lows left by the head, creating the right shoulder. The neckline is the trend line connecting the highs from the market corrections after the left shoulder and head. The theory is that the market has changed direction, and should
continue higher once it breaks the neckline.
The seemingly endless winter weather in the Midwestern U.S. lends support to this natural gas market, and forecasts are for continued cold weather. Another draw in stocks this week has given a boost to what was an over-supplied market just a few months ago. The market looks to be overbought and ready for correction, but until the cold weather subsides, weakness is most likely a good opportunity to get long.
April Natural Gas
If you cannot view the April Natural Gas chart, go here.
Support/Resistance for 2/29/08:
Apr Crude -- 9983, 9588 / 10316, 10613
Apr RBOB -- 26321, 24607 / 26852, 27704
Apr Nat Gas -- 9167, 8362 / 9556, 9749
The risk of loss in trading commodity futures and options can be substantial. Before trading, you should carefully consider your financial position to determine if futures trading is appropriate. When trading futures and/or options, it is possible to lose more than the full value of your account. All funds committed should be risk capital. Past performance is not necessarily indicative of future results. |
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About the Author
| After earning her bachelor's degree in economics from Northwestern University, Christy Olin
was inspired by family and friends who have been involved in the futures industry in a variety of forms. As a competitive swimmer of four years in college, Christy knew she would need a career that is challenging and fast-paced. She joined the RJO Futures team of brokers in order to grow within what she finds to be a very exciting industry. Christy would like the opportunity to work with you as your connection to the futures markets. |
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