Today's Spotlight Market

WTI Crude Futures failed to hold on to support from news that the oil flows from Canada were temporarily halted on the Keystone pipeline. This may signal that Oil bears are trying to get the upper hand, as domestic Oil inventories remain ample. Many bearish traders should be cautious of unwinding of Brent/WTI spreads, as this could add some buying pressure for WTI prices.

Fundamentals

WTI Crude Oil futures prices have moved sideways, as domestic inventories remain ample and U.S. Oil production is at 7-year highs. The Energy Information Administration ("EIA") estimates U.S. Crude Oil production to average 6.3 million barrels per day in 2012, up 700,000 barrels from last year. In 2013, the EIA expects even further gains, with projected totals expected to rise to 6.9 million barrels per day, which if true, would be the highest production totals in 10 years. U.S. Crude inventories rose to 369.2 million barrels after the EIA reported a 2.86 million barrel increase last week. This is over 37 million barrels above the 5-year average and demonstrates the affects of increased oil production from shale formations. The big question is, with U.S. Oil supplies high and demand lackluster, why are prices still over $90 per barrel? One reason may be tight supplies of oil products, such as gasoline and diesel which looks to be adding some support to WTI prices. Also, tighter supplies of the European benchmark Brent Crude are supporting WTI prices with the spread between the two Crude products currently at a $20 plus Brent premium. We cannot forget the ongoing concerns of Middle East tensions which seem to put in a near permanent "risk premium" into Oil prices. These mixed fundamentals appear poised to keep the December futures within its recent price consolidation between 88.00 and 94.50, unless a major fundamental shift occurs that overwhelmingly favors oil bulls or bears.

Technical Notes

Looking at the daily chart for December WTI Crude futures, we notice prices trading at the upper end of the recent $6 plus trading range. However, prices are still nearly $5 below the 200-day moving average, which many technicians view as a signal as to whether a market is in a bullish or bearish trend. The 14-day RSI is neutral with a current reading of 48.76. Resistance is seen at the recent highs of 94.15 made on September 21st, with support found at the October 3rd lows of 88.09.


Mike Zarembski, Senior Commodity Analyst

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