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Guest Blogger Tom Kloza: Watching The Numbers In a Key Session

Chief Oil Analyst, OPIS
Tom Kloza
Chief Oil Analyst, OPIS

This post is from guest blogger Tom Koza. Tom is Chief Oil Analyst at OPIS (Oil Price Information Service) and has his own blog.He has been writing about downstream oil markets since 1975 and was among the founders of OPIS over 25 years ago.

Today's NYMEX trading session may prove to be one of the most critical of the year. There is the distinct possibility that key "magic numbers" that have bracketed the most recent leg of the crude oil price rally will be approached in a highly volatile Wednesday session.

On the upside, the market has made numerous attempts in the last week to push through $119.90 bbl or so and put prices in the $120-$125 bbl range predicted by some of the bulls. But those efforts failed, even when geopolitics cooperated with a North Sea pipeline shutdown and a curb of some 750,000 bbl per day of Nigerian output.

On the downside, the $114.40 bbl level is viewed as a critical juncture. A slip below that number could quickly inspire thoughts that the 2008 bull market highs are history.

Here are some other factors that may add to the critical nature of April's last session of the NYMEX:

The Calendar: Gasoline and crude oil have a tradition of peaking early in the second quarter, and both contracts are extremely close to the average day that brings that Spring high tide peak. Gasoline has generally been the sherpa carrying crude higher, but the situation has been reversed so far in 2008.

Sentiment: Expectations for the trading community are still extremely bullish. In past years, a bullish consensus number (based on a survey of money managers) that saw more than 70 percent of participants describe themselves as "bullish" represented a severely overbought market. The bullish consensus numbers for RBOB and crude oil have been above 90 percentof late. This may indicate that there is no one left to buy.

The Dollar: The U.S. Dollar has had a comeback in the last 30 days even though the bullish consensus number in currency traders has been less than 25 percent for the greenback.

Interest Rates: The Federal Reserve will conclude its meeting today, and the expectation is that it will cut rates by a quarter of a percentage point. If it performs according to this expectation but includes stern language about the inflation threat, and points to no further tightening, all commodities may loose some steam. The commodities rally has been fueled by strong global demand, but easy money has been a catalyst.

DOE data: Department of Energy data released this morning may show higher refined products' output, but there's not much of a consensus on how crude stocks might perform. If higher refinery runs persist and there is no significant crude stock draw, it may create some skittishness among speculators holding huge crude positions.

In any case, many traders suspect that crude oil could trade in a range wider than $5 bbl from now through the 2:30 P.M. pit settlement. That would point to nearly 12cts gal in volatility for gasoline and distillate.

Watch the magic numbers for crude. A move above $119.90 bbl might signal at least one more significant leg for the ongoing rally. A move below $114.40 bbl in WTI might portend a search for a stable floor that could be substantially lower than recent numbers.

Questions? Comments? energysource@cnbc.com