Technical & Fundamental Oil Reports Specialists

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An oil rally not to be trusted

Published Monday, January 25th, 2016

First a few facts summarising a very dramatic week. As a result of Friday’s substantial rally Brent actually ended the week $3.24 bbl higher at $32.18 and WTI gained $1.80 bbl for a weekly close of $32.19. Both Heating Oil and RBOB finished the week just over 600 points higher. What was all the fuss about you might ask if you had been away and out of contact? The fuss was the panic caused by a plunge to $26.19 on WTI and $27.10 on Brent, a panic that tore across all markets and not just oil. Oil’s rollercoaster performance last week was of Disneyland proportions with a range of $6.16 bbl on WTI and $5.20 on Brent. The WTI/ Brent arb opened the week at +1.45 and closed it at + 1 ct/bbl. The products contracts were even more volatile with gains on Friday of 9.82 cts/gal on Heat, $25 pmt on Gas oil and $5.26 cts/gal on RBOB. For those not involved in oil trading it is easy to forget that products can often grab crude by the scruff of the neck and lead it substantially higher or lower when nothing has fundamentally changed in the crude balance.

So, does the first weekly gain of the year mean that the oil market has found a bottom and will crawl its way higher? Not likely. The most telling figure of Friday’s trading is the 11% daily gain of the NYMEX Heating Oil contract. It was the best performer across the board, something that does not happen very often. Brent gained 10% on Friday, WTI 9% and RBOB 5%. The reason for the relative Heating Oil strength is obvious – winter. The recent cold snap, however, will be over one day (and not in the distant future, according to weather forecasts) and when it is, the support provided to Heating Oil prices will evaporate.

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Posted by David Hufton