Given that we have been short WTI a heck of lot more times than we have been long on it this year, that question almost seems absurd to us.
That said, we have to appreciate that the mid $90s has been an area that has attracted buying interest since the troubles in Libya sprung to the fore in late February.
In the same vein, spot NYMEX crude oil (on the continuous axis) gapped upped, from an 87.88 high print on Friday, February 18th to a low of 89.77 the following Monday, February 22nd.
Bottom line, WTI looks like a “buy” down at this level, but we are keeping our powder dry. As the following graph illustrates, the euro €/U.S. $ cross broke through key support yesterday at 1.4342. The next area of support for the cross to challenge is the psyche-critical level at 1.400. This area held last month, but given the headlines the PIIGs are attracting, euro € bulls might not be so fortunate this time around.
Thus, if the euro € fails at 1.400, we think that will clear the path towards the 89.77/87.88 gap in WTI.
We admit that we could be missing a great opportunity to get long WTI at these levels, but given the market’s correlation to the dollar, we are not comfortable with the risk metrics.
To this effect, should the market close the gap in WTI, then regardless of the value of the dollar, The Schork Report is advising clients that we will be very interested in getting long oil.
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Stephen Schork is the Editor of The Schork Reportand has more than 17 years experience in physical commodity and derivatives trading, risk systems modeling and structured commodity finance.