Yesterday (Wednesday), the US dollar sank 0.7% against the euro and Nymex crude oil jumped by 0.5% in response. In the process the contract for November delivery hit an intraday high of 84.09, thereby closing the May 13th/14th gap at 84.05. The bull’s next target in this market is the 62% retracement (May 03rd/25th) at 84.67.
Beyond here, the bears do not have much to lean on. Therefore, they either put up a fight now or they go home.
In this vein, should the market close above the 62%, The Schork Reportwill have to drop our bearish daily bias. Keep in mind, we still like this market lower at this point, but with the dollar in its current free-fall, our confidence in a selloff is low.
For example, over the last ten days of the rally in crude oil, volatility (OVX - the so-called "Oil VIX") has averaged 30.8% or 96 bps below the previous ten days, i.e., confidence in the market is high.
Meanwhile, yesterday, the DOE reported a seasonal, albeit large, build in weekly crude oil inventories as refiners ramped up their fall maintenance schedules. Over the last two weekly reports refinery utilization rates dropped by 470 bps to 83.1% of capacity. Refinery utilization rates (and therefore demand for crude oil) should start their seasonal rebound in the weeks ahead.
Finally, oil stocks at the Nymex delivery hub in Cushing, Okla. rose for the first time in nine weeks. Recall, in September the contract for October delivery averaged a $1.30 discount (-1.7%) to the November contract. Those economics offered a strong incentive to take delivery of oil this month. As such, stocks will be comfortable once refinery demand returns from turnarounds.
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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.
