Oil Prices Refuse to Hold Below $80
Today's Idea
The "spike" low near the $75.00 level in December Crude Oil may be a barrier that will be difficult to take out, at least prior to the expiration of the December contract in November. Some traders who are looking for the recent lows to hold may possibly wish to explore selling puts in December Crude Oil options with strike prices below major support at $75.00. For example, with December Oil trading at 87.00 as of this writing, the December 70 puts could be sold for about 0.60 or $600 per option, not including commissions. The premium received would be the maximum potential gain on the trade and would be realized at option expiration in November should December Crude Oil be trading above 70.00.
Fundamentals
It appears that a bullish bias still exists in Crude Oil prices, as once again not even continued fears of global economic slowdown appear to be able to keep WTI Oil prices from holding below the $80 per barrel level. Granted, there was some better economic data released this past week that may have encouraged some traders to bid Oil prices higher, but there is still no firm resolve to the European debt situation, and political gridlock is hampering policies to encourage job growth in the US, both of which have weighed on commodity prices during the past several months. December WTI futures are currently trading at nearly 4-week highs, despite a much larger than expected build in Crude Oil inventories last week. The weekly EIA energy stocks report, which was released on Thursday due to the Columbus Day holiday on Monday, showed that Crude Oil stocks rose by a larger than expected 1.344 million barrels, due to higher Crude imports and lower refinery utilization as we are entering the refinery maintenance season, because refiners switch over to production of Heating Oil vs. Gasoline going into the winter heating season. US Oil inventories are nearly 23 million barrels below last year's totals, but still are on the higher end when compared to the 5-year average. With some talk of a possible expansion of the European bailout fund and better inflation data out of China that may put an end to some of the monetary tightening policies that the Chinese government has put in place to slow the rate of inflation, we may start to see global demand for Crude Oil begin to stabilize -- or possibly even rise -- especially if we start to see the current sense of "uncertainty" regarding the global economy start to wane.
Technical Notes
Looking at the daily chart for December WTI Crude Oil, we notice once again how prices continue to remain unstable below the $80 level, having spent only a few sessions below this key technical level before good buying emerged, sending prices sharply higher during the past few sessions. Prices now are holding solidly above the 20-day moving average, which is keeping short-term Crude bulls firmly in charge. However, before the market can turn solidly into the bull camp, there are several technical barriers which must be overcome. There is solid chart resistance between the 90.00 and 91.00, basis the December contract, and additionally the 200-day moving average is hovering well above current prices near the 97.50 level. The 14-day RSI has turned neutral to positive, with a current reading of 55.47. The next resistance level for December WTI is seen at 90.00, with support found at the 20-day moving avenge, currently near the 83.00 level.
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