Oil range bound ahead of inventory reports

Quote of the Day.

I never did give them hell. I just told the truth and they thought it was hell.

Harry S. Truman

The spot WTI contract held range support and has now moved back to the middle of its trading range on the last day of trading for the March Nymex WTI contract. The soon to be spot April contract has been in a trading range (since the middle of January) of about $99/bbl on the upside and $95.40/bbl on the lower end. At the moment the contract is trading in the middle of its trading range. Both range support and resistance have been successfully defended several times since January. For now I would expect more of the same unless a strong directional catalyst emerges.

On the other hand the spot Brent contract has broken below its upward trending channel that was in play since mid-January. It is trading below the key technical level of $118/bbl with the possibility of the contract moving to test the next support level of about $115/bbl. It has now been trading below the $118/bbl level for five trading sessions and barring a surprise upside price direction catalyst emerging Brent should remain biased to the bearish side.

As I discussed in yesterday's newsletter the April Brent/WTI spread failed to breach the upside range resistance level and has traded down toward the $19.70/bbl support level. For those who entered the spread from the short side the market is close to the original objective and if the $19.70/bbl support level holds we could get another move back to the upside. If support is breached the next support level for the spread will be around the $18.25/bbl level.

The Seaway Pipeline operator indicated in a FERC filing that they expect to be able to average about 295,000 bpd flow through the line for the period February through May. They also went on to say that they hope to raise the throughput to 335,000 bpd but it is not expected to increase above that level due to the anticipated mix of light and heavy crude oil. This is slightly bearish for the Brent/WTI spread as it is an increase of movement of oil out of Cushing over January's levels.

Also, as I have been indicating, the Nymex RBOB contract is very overbought and susceptible to a round of profit taking selling. A light round hit the market yesterday with selling continuing into this morning (so far). Since peaking yesterday the April contract has lost about $0.035/gallon of its values. Certainly only a minor correction (basis the $0.40/gallon upward move for the April contract since January) so far but most importantly the April RBOB contract has now breached its upward trend channel support that has been in play since the middle of January. The next support level for the April contract is around $3.20/gallon. Unless the market gets some new fundamental support I would expect the downside correction to take the price down to the next support level.

In the area of currency wars, Germany's Chancellor Merkel dismissed any thoughts of currency manipulation saying that the current value of the euro is within the currency's normal trading range. She said that euro exchange rates of between $1.30 to $1.40 are part of the normality of the history of the euro. All of that sounds good but with the yen continuing to decline, Japanese companies are continuing to see their export pricing advantage growing. Germany's equity market is underperforming most other developed world markets as it continues to be impacted by a rising euro.

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