What did we learn about the crude oil market this week?
On the bearish side of the equation, we learned that according to the U.S. Energy Information Administration, crude oil inventories rose for the eighth straight week to a record 520.2 million barrels.
We also saw the U.S. Dollar soar, making dollar-denominated crude oil more expensive for foreign buyers, which could lead to lower demand. This factor could exert even more pressure before mid-month because traders have driven up the chances for a Fed rate hike at its next meeting on March 15 to about 70 percent. If the Fed hikes then crude could feel more pressure.
On the bullish side of the equation, we found out from Reuters that OPEC boosted already strong compliance with the cartel’s six-month agreement to 94 percent in February.
We also know that hedge and commodity funds are sitting on record long positions. This sounds bullish, but the price action this year suggests they are accumulating positions on the dips, and are reluctant to buy strength. This may indicate that they are willing to buy low and sell high, but aren’t too interested in buying high and selling higher.
If you need a comparison, think of the current rally in the stock market. This is a momentum driven rally because investors have been willing to buy high and sell higher.
Using basic math, I think the market has been trading in a range because U.S. production has been off-setting OPEC’s cuts. The…