Looking to the Futures: Does oil have more room to run?

May 20, 2022 Kevin Green
Oil markets continue its volatile ride while traders attempt to assess the fundamentals within the industry to gain insight into futures prices of the product.

Oil markets continue its volatile ride while traders attempt to assess the fundamentals within the industry to gain insight into futures prices of the product. On Wednesday May 18th, the Energy Information Administration reported a decline in commercial crude oil inventories by 3.4 million barrels from the previous week exceeding market expectations. Gasoline production decreased last week with production averaging 4.9 million barrels per day. Not surprising that we are seeing prices increases as consumer demand has been increasing as we head into peak travel season. According to AAA (‘Triple A’) today’s national average for regular gasoline has topped $4.593. Refineries operated at 91.8% of operable capacity in the previous week an improvement from the previous week but these refiners are attempting to meet demand in several different products such as finished gasoline, gasoline blending components, and diesel fuel. Ramping up capacity involves staffing, capital expenditure spending, and time. All 3 components currently in short supply.

With June Crude Oil reaching $109.00 in early trading this morning some of the other events lurking around the world could still put upward pressure on the commodity. China has effectively shutdown almost all major cities to combat COVID 19. At some point, they will reduce or remove those restrictions opening the floodgates for increased demand across the country from a consumer standpoint and a manufacturing standpoint. This morning Russia has retaliated against Finland for applying for NATO membership effectively stopping the flow of natural gas to Finland starting on Saturday according to a statement by Gasum, one of Finland’s energy providers. Now obviously this impacts natural gas, but these two products have been significantly correlated when geopolitical events surrounding the Ukraine/Russia conflict occur.

Technicals

A channel has emerged for Crude oil as volatility continues from a historical standpoint, but the range has consolidated since the middle of March. A resistance level to focus on will be the $113.75 level intersecting with the upper end of the channel. Support can be identified around $102.80 which aligns with the lower end of the channel as well as the 50-day SMA which has consistently been a launching point for Crude since March 14th, 2022.

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