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Understand the markets you trade and their average trading range -- and create an appropriate risk management strategy accordingly.
- Christy Olin | |
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Today's Featured Article
The energy futures markets continue to trade higher, based upon global supply concerns and the Organization of the Petroleum Exporting Countries' (OPEC) insistence that it will not increase oil production. Russia and Nigeria have reported a drop in production, but have supply concerns worn out their welcome? Natural gas inventories continue to dwindle, but prices remain cheap in comparison to crude oil.
For the month of April, crude oil has moved almost straight up -- making higher highs every day except four. The crude oil market traded at $118 per barrel this week, and several market analysts are looking for the next upside to be $120 for the June contract. Saudi Arabia's Oil Minister has said again and again that OPEC has no intention of increasing production, pointing to the weak U.S. dollar as the cause of the high energy prices. Rebels in Nigeria have attacked the oil facilities of the Royal Dutch Shell Company, causing them to declare a force majeure on exports from this facility. Nigeria is the sixth largest oil producer in OPEC and one of the top exporters to the U.S.
Recently, this market seems to be grabbing at straws for any excuse to move higher -- setting up a proverbial house of cards. The market has been trading in a narrow and steep uptrend this month and was testing the support of that channel at press time (Thursday). The long-term trend remains higher, and that trend will not be broken until we see prices below 114. But with worldwide economic pressures affecting currency prices, a correction might not be far off. This market has been overbought for almost two weeks, and there is very little support in the June contract before the 10850 level -- and below there at 106. Prices trading up at these levels provide an opportunity to take advantage
of the correction. Look to buy July puts, or sell the June outrights on a break below 114.
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Reformulated gasoline blendstock for oxygen blending (RBOB) rallied through the resistance at 276 with a vengeance, and is now flirting with the 305 level for the June contract. Refinery rates, though four percent higher this week, are at a five-year low as we head into driving season. Coupled with the strength in the crude oil market, the gasoline market seems to be poised to move higher. The market rallied on Wednesday, after the draw on gasoline stocks was greater than expected. Analysts predicted a drop of 2.7 million gallons; the inventories were 3.2 million lower. Though this market has also been overbought for the past two weeks, the move
upward has been more gradual than in the crude oil -- and it spent an extended period of time consolidating around that 276 level. Obviously, RBOB will feel pressure if there is a correction in crude oil prices. But given the time of year, the affect will likely be minimal. There is resistance at 305, both technically and psychologically, but there is very little resistance above this level.
Natural gas storage levels have fallen below the five-year average. And with recent supply concerns in London, analysts were looking for another draw on stocks in Thursday's report. The weather will likely bring pressure to this market, as temperatures warm up across the Midwestern United States in the coming weeks. But natural gas is still cheap relative to crude oil. If industrial consumers can figure out how to use natural gas instead of crude oil for their cooling needs, there could be another wave higher in this market. Natural gas has traded in a steady uptrend for the month of April. And with the continued boost from inventory numbers, we could see continued strength. However,
keep in mind that technical indicators have recently become overbought in this market -- and when this market breaks, it breaks quickly. The market fell 200 in a matter of four days on the last correction. Look for a correction as an opportunity to take advantage of the long side of this market. | |
Support/Resistance:
June Crude -- 11609, 11400 / 12018, 12122
June RBOB -- 29304, 27612 / 30575, 30790
June Nat Gas -- 10662, 9886 / 11079, 11293
If you cannot view the June Crude Oil chart,
go here.
The risk of loss in trading commodity futures and options can be substantial. Before trading, you should carefully consider your financial position to determine if futures trading is appropriate. When trading futures and/or options, it is possible to lose more than the full value of your account. All funds committed should be risk capital. Past performance is not necessarily indicative of future results.
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About the Author
| After earning her bachelor's degree in economics from Northwestern University, Christy Olin
was inspired by family and friends who have been involved in the futures industry in a variety of forms. As a competitive swimmer of four years in college, Christy knew she would need a career that is challenging and fast-paced. She joined the RJO Futures team of brokers in order to grow within what she finds to be a very exciting industry. Christy would like the opportunity to work with you as your connection to the futures markets. You can reach Christy at colin@rjofutures.com. | |
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