Pressure Building On Crude Prices
By Jim Hyerczyk - Mar 13, 2015, 5:03 PM CDT
Crude Oil
May Crude Oil futures were under pressure most of the week driven by concerns over huge supply and diminishing demand. The U.S. Energy Information Administration’s supply and demand report for the week-ended March 6 showed that crude supplies rose for the ninth straight week. The bright spots in the report were that the 4.5 million barrel increase met pre-report estimates and was also much lower than the previous week’s 10.3 million barrel build. It’s too early to tell if the number of barrels is trending lower. One week does not make a trend so next Wednesday’s report is going to carry more weight than usual.
A drop in the number of barrels will also be a sign that the decline in the number of producing rigs may be working. This is the key fundamental factor that is holding this market in a range.
Despite straddling a key retracement area at $50.80 to $49.55, a downside bias seems to be developing. The lower top at $54.00 on March 5 and the lower-low on March 11 at $49.17 are signs that the downtrend may be re-emerging. Since the market may be in the hands of weak short sellers who showed up late to the game, buyers have been able to prevent a “wash-out” to the downside.
There are two major concerns weighing on prices at this time. The first is concern that storage is at or near capacity at the Cushing, Oklahoma hub. Based on the current build rate, supply is getting very close to challenging this…
Crude Oil
May Crude Oil futures were under pressure most of the week driven by concerns over huge supply and diminishing demand. The U.S. Energy Information Administration’s supply and demand report for the week-ended March 6 showed that crude supplies rose for the ninth straight week. The bright spots in the report were that the 4.5 million barrel increase met pre-report estimates and was also much lower than the previous week’s 10.3 million barrel build. It’s too early to tell if the number of barrels is trending lower. One week does not make a trend so next Wednesday’s report is going to carry more weight than usual.
A drop in the number of barrels will also be a sign that the decline in the number of producing rigs may be working. This is the key fundamental factor that is holding this market in a range.
Despite straddling a key retracement area at $50.80 to $49.55, a downside bias seems to be developing. The lower top at $54.00 on March 5 and the lower-low on March 11 at $49.17 are signs that the downtrend may be re-emerging. Since the market may be in the hands of weak short sellers who showed up late to the game, buyers have been able to prevent a “wash-out” to the downside.
There are two major concerns weighing on prices at this time. The first is concern that storage is at or near capacity at the Cushing, Oklahoma hub. Based on the current build rate, supply is getting very close to challenging this limit. The second worry is that demand for crude may drop when refineries begin their normal seasonal maintenance.
Given these fundamentals, it looks as if crude oil will be under pressure over the near-term unless there is a drastic change in supply. The refinery slowdown caused by maintenance could last into early April.
Unleaded Gasoline
The May Unleaded Gasoline chart paints a much friendlier picture than the crude oil chart. This market is in an uptrend on the daily chart. Recently, the market rose about 45 cents over a nearly two-month period before finding resistance at a 50% level at $1.9735. The actual top came in at $1.9795.
A new short-term range has formed between $1.5237 and $1.9795. Because of the continuous build in crude oil supply, gasoline prices have been under pressure since topping on February 27. The primary downside target of the current correction is the retracement zone at $1.7516 to $1.6978.
The planned shutdown of refineries until April should lead to a decrease in demand for crude oil, but it could cause supply issues with gasoline. This could trigger another rally in unleaded fuel. Technical factors could also underpin the market if buyers recognize $1.7516 to $1.6978 as a value zone.
Summary
The main focus this week for crude oil traders should be on the developments at Cushing, Oklahoma. Late in the week, data service Genscape Inc. reported that inventories in Cushing rose by 2.2 million barrels between March 6 and March 10. This would mean that storage is at or near maximum capacity. If this proves to be true then traders will be facing another large build in Wednesday’s EIA report.
With demand expected to drop for crude oil because of seasonal maintenance at refineries, selling pressure may build and support may fail, sending the market sharply lower.
