Oil caps for longest run of weekly gains since 2004 on economy

‘Hurting’ WTI

“The realization that the Seaway reversal isn’t the answer to the backlog of supply in the central U.S. is hurting the WTI price,” said John Kilduff, a partner at Again Capital LLC, a New York-based energy hedge fund. “There was a lot of optimism, which has quickly dissipated.”

Increasing oil output in the U.S. and Canada and the lack of outlets has bolstered inventories at Cushing, Oklahoma, the delivery point for WTI. Supplies at the hub rose 284,000 barrels to 51.7 million last week, the Energy Information Administration said Jan. 30, down from the record 51.9 million Jan. 11.

“It looks like the Seaway pipeline restart is not going to happen as quickly as people thought and we still have that glut situation,” Phil Flynn, senior market analyst at the Price Futures Group in Chicago. “There is concern that supply is going to back up.”

Technical Factors

Oil’s rally in New York may accelerate after the formation of a bullish technical formation known as a “golden cross.” The 50-day moving average now trades at a premium to the 200-day indicator, according to data compiled by Bloomberg. Investors typically buy contracts when a moving average rises over a longer-term one.

“I’m optimistic that we’ll continue to move higher,” said Bob Yawger, director of the futures division at Mizuho Securities USA Inc. in New York. “We got to a golden cross formation yesterday when the 50- and 200-day moving averages crossed, which is a bullish indicator.”

The increase in futures may also gain strength if the price breaches a four-month high of $98.24 a barrel touched on Jan. 30, Yawger said. Prearranged orders to buy oil at specific prices, known as stops, will be triggered if the contract exceeds that level, he said.

“It looks like we will test Wednesday’s high of $98.24,” Yawger said. “Once we break through that level, stops will be triggered and length will jump in.”

Geopolitical Risk

Oil may increase next week as instability in the Middle East and North Africa bolsters concern that shipments will be disrupted, a Bloomberg survey showed. Eighteen of 43 analysts, or 42 percent, forecast crude will increase. Sixteen respondents, or 37 percent, predicted a decline and nine forecast little change.

Electronic trading volume on the Nymex was 716,678 contracts as of 2:35 p.m. It totaled 672,684 contracts yesterday, 32 percent above the three-month average. Open interest was 1.57 million, the highest since Nov. 12.

Bloomberg News

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