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Open Interest Analyst

Open Interest Analyst

Garry SternGarry is the founder of openinterestanalyst.com (OIA), a website dedicated to analysing the interaction between price, volume, and open interest (P-V-OI). After consistently applying…

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A Trader's Review of the Energy Markets

Crude oil:

May WTI crude oil gained 12 cents on volume of 508,715 contracts. Open interest increased by 6,527, which in relation to volume is approximately 45% below average. May Brent crude declined 39 cents on volume of 659,719 contracts. Open interest increased by 4,881 contracts, which in relation to volume is approximately 65% below average.

For the past 7 trading sessions beginning on March 22 through April 2, open interest in WTI has increased 81,789 contracts and May crude oil has advanced $4.74. Brent crude oil advanced $3.72 in the same 7 day period. From March 22 through April 2, open interest in Brent crude has increased only 20,088 contracts. In short, open interest in WTI has increased approximately 4 x greater than Brent in the same 7 day period.

Although price and open interest action for WTI has been acting in a very bullish manner, we have told our readers that until Brent crude and either heating oil or gasoline generate a short-term buy signal, advances in WTI will tepid. Additionally, it will be vulnerable for a setback, which is overdue. Brent remains on a short and intermediate term sell signal and gasoline remains on a short-term sell signal and an intermediate term buy signal, while heating oil remains on a short and intermediate term sell signal. As this report is being compiled, May WTI is trading $2.04 lower and has made a new low for the move at $94.89. May Brent is trading $2.54 lower and has made a new low for the move at $107.78. Currently, WTI is trading at its 50 day moving average of $95.25, but a move to $93.80 appears likely.

Heating oil:

May heating oil gained 1.87 cents on volume of 129,411 contracts. Open interest increased by 3,600 contracts, which in relation to volume is average. On April 2, May heating oil touched 50 day moving average of $3.103, but was unable to hold the gains and closed at $3.089. Heating oil remains on a short and intermediate term sell signal, and as this report is being compiled, May heating oil is trading 5.83 cents lower.

Stand aside.

Gasoline:

May gasoline lost 6.07 cents on heavy volume of 182,101 contracts.

Open interest declined by 4,230, which in relation to volume is approximately 10% below average. As this report is being compiled, May gasoline is trading 9.15 cents lower. If gasoline breaks down to $2.90, there is no support until the $2.72 area. One factor that is powering gasoline sharply lower is the very high long to short ratio of managed money. For example, as of the latest report COT report, managed money is long gasoline by a ratio of 10.87:1, which is down from the previous week of 12.28:1 but up from the ratio of 2 weeks ago of 9.32:1. This compares to managed money being long WTI crude by a ratio of 5.66:1 and managed money being short heating oil by a ratio of 1.02:1.Stand aside.

Natural gas:

May natural gas lost 4.6 cents on light volume of 353,748 contracts.

Open interest increased by 4,178 contracts, which in relation to volume is approximately 55% less than average.

For the past 11 trading sessions beginning on March 18, open interest has increased 142,913 contracts while natural gas has advanced 7.5 cents. The massive open interest increase compared to the relatively small advance should concern anyone long the market. Heavy selling is capping prices and the shorts are in control. Speculators have rushed into the long side, which makes the market vulnerable to a significant pullback. For clients who are long futures or options, we have suggested they write out of the money calls. We recommend that sell stops be placed at $3.885. Natural gas remains on a short and intermediate term buy signal.

By. Garry Stern


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