Fundamentals

Indecision about the state of the global economy has caused Crude Oil futures to get stuck in a rut. Economic data that has been trickling in from the US and abroad has been mixed, making it difficult for traders to gauge where the economy is heading in the intermediate term. Adding to the confusion, inventory data has been equally skittish lately, clouding the supply and demand outlook. Yesterday's EIA inventory report was a prime example. The report showed an unexpected rise of 7.31 million barrels, versus consensus estimates of a 1.73 million barrel drawdown. The price of Oil has flirted with the $80/barrel level for the third time in a little over a month, but negative news seems to foil Oil bulls just when the market appears to be gaining traction. The recent declines in the exchange rate of the greenback show that many traders are willing to take on more risk, but there is still a large contingent that is continuing to just dunk their toes into the pool to test the water and then quickly back away. The Fed's beige book was loaded with typical Fed-speak and hedged statements. The central bank did concede that the economy is growing at a more modest rate, which could lead to continued choppy trading. The release of the beige book comes on the heels of disappointing new homes sales, falling consumer confidence and an unexpected drop in durable goods orders, which does little to instill confidence among traders. Unless tomorrow's jobless claims and GDP data inspire Crude Oil bulls, prices could drift back into the low 70's or beyond.

Technical Notes

The September Crude Oil chart shows prices hitting a brick wall when approaching the $80 resistance level. The overbought readings on the RSI also contributed to the pullback when prices were on the verge of testing $80. A breakout above $80 could be met with resistance at 82.50 and 85.00. Prices did manage to hold above the 20-day moving average yesterday. A close below the 20-day average could suggest that a near-term high is in place. Prices could pull back to test support near the 71.50 level or additional support just below $70. Momentum is showing bullish divergence from the RSI indicator and prices, suggesting the market may be able to hold its ground in the short-term.

Trading Ideas

Neither fundamentals nor technicals give a clear path for Crude Oil prices. It seems as though direction is less and less clear with the release of economic data. Barring a bombshell, this pattern could very well continue for the foreseeable future. For this reason, some traders may wish to enter into a neutral strategy like a strangle, selling the September Crude Oil 83 calls (CLU083C) and selling the 67.5 puts (CLU067.5P) for a credit of 0.55, or $550. Traders may wish to manage their risk by exiting the trade when the price of the underlying approaches either of the strike prices.

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