Aside from Friday’s end-of-year surge, spot crude oil on the Nymex has gone nowhere since analysts at The Schork Reportswitched their daily trading bias into Neutral on December 07th. For instance, up through last Thursday the spot oil contract for February delivery closed higher in 9 out of 17 sessions with an average daily gain of $0.543 per barrel and closed lower in the 8 other sessions on average by $0.599 per barrel for a gain of… yawn… $0.10 per barrel.
Thus, as we begin 2011 we acknowledge momentum favors the bulls. Based on where implied volatility was marked last week in the March 2011 contract, odds are 4:1 we will see $100 crude oil against odds of 7:1 for the potential of $80 oil. As far as the spot February contract goes, odds are 22:1 for $100 against 81:1 (!) for $80 before options go off the board on January 14th.
In this vein the spot market is now flirting with an overheard area of congestion in between 90.91 and 91.79 and the March market in between 91.67 and 92.51. Strong bids through this resistance cautions for a move towards the mid $90s. Be that as it may, if we see this upward movement we will advise our clients on a day by day basis whether to fade or buy into it.
Congestion on the flip-side in the spot market is from 88.83 to 87.77 and from 89.55 to 88.51 in the March. Failure to hold this level cautions for further corrective weakness. Bottom line, spot crude oil averaged 79.72 on the Nymex in 2010 with overhead resistance in the mid $80s and support in the low $70s.
As we look to 2011 it appears the market has ratcheted up $10 with overhead resistance in the mid $90s and support in the low $80s. Therefore, we will likely be advising clients to fade the top of the range and buy the bottom.
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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.