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Why Oil's Surge Today Could Mean a Sell-Off Tomorrow

Wednesday, 19 Dec 2012 | 4:56 PM ET
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Crude nearly touched $90, only to close 1.5 percent higher.

Why was the market so strong today? Well, there were a few reasons.

First, take a look at the lower U.S. dollar and higher equities. Sprinkle on the U.S. Department of Energy inventories, with a drop in crude of almost one million barrels week-over-week, and a smaller build in the gasoline inventories pushing prices up as well. But the interesting thing that trumps all is the January 2013 futures contract expiration.

Roger Milley | Vetta | Getty Images

Take a look at the similar price action one month ago on November 19. In fact, that day, the market rose roughly 2 perent. We heard that a large short position had been covered then, forcing the trader to buy the contracts back. This pushed the market higher to, once again, just under $90. The very next day, the market sold off and resumed its "downward channel" trade.

This could be the case today, as well. Today's action aside, the fact remains that record supply levels on WTI have kept a lid on the market price. Geo-political tensions have been taking a back seat as well.

So what's the take away? Given that we closed below $90 today, "look out below" tomorrow.

Read on for 10 Things You Need to Know to Trade Futures

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