Energy / Oil Prices

• Changing Behavior of Crude Oil Futures Prices

  I've just finished a new research paper with my former student (and now University of Chicago Professor) Cynthia Wu. In our new paper, we study how increased purchases of crude oil futures contracts by financial investors may have affected the prices on those contracts. A crude oil futures contract is an agreement between two parties to purchase oil at a future date at a price agreed upon today. For example, on Friday the November contract closed at a price of $88.18, meaning that if both parties were to hold on to the contract until expiry (which for this contract happens…

• Crude Oil Prices Drop Ahead of federal Reserve Meeting

  Crude oil futures edged lower on Wednesday, as traders positioned themselves ahead of the outcome of the Federal Reserve’s monetary policy meeting later in the day and a government report on U.S. crude supplies. On the New York Mercantile Exchange, light, sweet crude futures for delivery in November traded at USD86.36 a barrel during European morning trade, retreating 0.64%.    It earlier fell as much as 0.75% to trade at a daily low of USD86.28 a barrel. The Fed’s Open Market Committee was to conclude its two-day policy meeting later in the day, amid speculation that the central bank could introduce…

• Crude Oil Analysis for the Week of September 19, 2011

  What promised to look like a bullish week on Tuesday, failed as the rally in November Crude Oil fizzled with a series of narrow trading days. The trading action became so weak that the market couldn’t even exceed the previous week’s high at 90.69 and instead produced an indecisive inside week. To be fair, although an inside week indicates indecisiveness, it is often indicative of impending volatility, setting up the market for a breakout in either direction. With the main trend down on the weekly chart, there is still a slight bias to the downside. Most of this week’s action…

• Crude Oil Analysis for the Week of September 12, 2011

  November Crude Oil finished the week slightly better after ping-ponging between a pair of Gann angles at $87.39 and $86.61. Volatility was also high, helping to form an outside move for the week. The main trend remains down on the weekly chart and will turn up on a trade through the swing top at $101.39 or reaffirm on a trade through the last swing bottom at $76.61. The narrowing of the range between the two previously mentioned Gann angles indicates the market is setting up for a breakout. A move through $87.39 is likely to run into immediate resistance at…

• Brent Versus WTI - Why so Wide

  We set another record yesterday. This one has me scratching my head. The Brent WTI spread widened to $27.22. That’s never been seen before. There are some partial explanations for this phenomenon. Brent is lighter in grade and justifies a somewhat higher price. But not $25. Another consideration is the increasing flow of crude from the Bakken field in North Dakota. This crude often heads to Cushing, Oklahoma, and therefore creates a supply glut. The WTI price should be lower than Brent based on this. But, one again, $25 seems out of whack. The smart guys up in NDAK are…

• An Update on My Oil Short

  Will everyone please take a look at the chart below for the United States Oil Fund ETF (USO) and tell me if you don’t see a downtrend? Because if it is not there, I want to rush out and take a profit on my October, 2011 $34 puts, which I bought Monday for $2.14. If you do see the downtrend, then I am going to run my short into the obvious downside targets on the chart below. The initial objective, what I call the “easy money target”, kicks in at $33 on the (USO), which will take your $34 puts…

• Crude Oil Analysis for the Week of September 5, 2011

  Crude Oil futures fell on Friday after the U.S. released a dismal jobs report, but still managed to close slightly better for the week. The reaction by traders strongly suggests that a weakening economy will diminish demand, leading to lower energy prices over the near-term. The recent three-week rally appears to have come to an end after the market completed a 50% retracement of the break from 101.00 to 76.15 at 89.90. Technical expectations were for a rally into 88.58 to 91.51, and the market accommodated with very precise rally into this zone. Additional resistance comes in at a downtrending…

• Fundamentals, Speculation, and Oil Prices

  I was in Washington DC last week, arriving right after the earthquake and getting out of town just before Irene, to attend a conference on commodity markets at the Commodity Futures Trading Commission. Here are some of the remarks I made at the conference on the role of speculation and fundamentals in recent oil price movements.Solid line: Price of West Texas Intermediate using near-month NYMEX futures price in dollars per barrel (left scale). Dashed line: Long positions in oil futures contracts of commodity index funds as inferred using the methodology of Masters (2008) (in numbers of contracts or equivalently thousands…

• Crude Oil Analysis for the Week of August 29, 2011

  October Crude Oil posted an inside week but still managed to close higher. The inside pattern often indicates impending volatility because of the compression of the daily ranges. Since the market closed higher, there is a slight bias developing that the volatility will occur following a breakout to the upside. After straddling a down trending Gann angle for the past three weeks at 81.55, the close on the bullish side of this angle indicates the market may attempt to launch a rally into the next downtrending Gann angle at 91.00. Despite the formation of a potentially bullish support base, the…

• Crude Oil Analysis for the Week of August 22, 2011

  October Crude Oil futures fell last week on perceptions that the economic recovery in the U.S. remains sluggish. As the week wore on, disappointing U.S. economic reports continued to reveal a gloomy picture of the economy. From weaker than expected existing home sales to bigger than expected weekly jobless claims, negative news weighed heavily on the confidence in the strength of the economic recovery. Bad economic news out of Europe also contributed to crude oil’s weakness as investors expressed worries about a possible double-dip recession. Of chief concern at this time is the demand picture. Issues were raised about whether…