WTI crude oil:
May WTI crude oil gained $1.14 on volume of 988,138 contracts. Total open interest declined by 8,523 contracts, which relative to volume is approximately 50% below average. The May contract lost 9,333 of open interest. Yesterday’s total open interest declined confirms that short-sellers were powering the market higher, not new buyers. Actually, with the relatively low open interest lost in the May contract the buying in the back months was sparse. As we pointed out in previous reports, most analysts are skeptical of crude’s ability to advance. We are not in that camp.
Yesterday, the May contract made a high of 49.63 and this has been taken out in trading on March 30 with another new print for the move of $50.46, which is the highest print since 50.64 made on March 10.
The May WTI contract is getting close to generating a short term buy signal and this will occur when the daily low is above OIA’s key pivot point for March 30 $50.25. May gasoline will generate a short term buy signal on March 30 and May heating oil is likely to generate a short term buy signal in tomorrow’s trading.
The December 2018-December 2019 WTI spread began to show positive carry in yesterday’s trading and it closed at 24 cents premium to December 2018. The spread continues to widen in trading on March 30. We like the bull spread in this futures pair
Yesterday, the Energy Information Administration reported that U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 0.9 million barrels from the previous week. At 534.0 million barrels, U.S. crude oil inventories are at the upper limit of the average range for this time of year. Total motor gasoline inventories decreased by 3.7 million barrels last week, but are in the upper half of the average range. Both finished gasoline inventories and blending components inventories decreased last week. Distillate fuel inventories decreased by 2.5 million barrels last week but are in the upper half of the average range for this time of year. Propane/propylene inventories fell 1.5 million barrels last week but are in the middle of the average range. Total commercial petroleum inventories decreased by 3.9 million barrels last week.
Gasoline: May and June 2017 New York gasoline will generate short term buy signals on March 30, but remain on intermediate sell signals.
May New York gasoline advanced 3.70 cents on volume of 242,220 contracts. Total open interest declined by 4,811 contracts, which relative to volume is approximately 20% below average. Yesterday’s advance was powered by short-sellers moving the market higher, not new buying. However, we think this is about to change.
The COT report released last Friday revealed that managed money liquidated 1,576 of their long positions and added 6,406 to their short positions. Commercial interests liquidated 2,645 of their long positions and also liquidated 5,266 of their short positions. As of the March 21 tabulation date, managed money was long gasoline by ratio of 1.55:1 down sharply from the previous week of 1.92:1 and the ratio two weeks ago of 2.07:1.
We really like the long side of gasoline. The summer driving season has just begun the market has clearly bottomed in our opinion. The moving average setup is bullish. For example, the 50 day moving average for the May contract is 1.7205, 100 day 1.7312 and 200 day moving average is 1.6656. We are confident the 50 day will be moving above the 100 day.
Also, gasoline stocks are declining just as the summer driving season begins. For those of you who trade equities, we recommend initiating long positions in the ETF UGA. It tracks gasoline futures well during the past 30 days. For example, May gasoline during the past 30 days lost 5.22% while the ETF lost 4.97%. For the past 7 days, the gasoline ETF has advanced 3.68% versus the futures contract of 3.74%.
During the period of March 15 through March 24, May crude oil lost 2.77%. In the same time frame, May gasoline gained 0.79% while the gasoline ETF advanced 1.05%. This confirms to us that the lows are in at least for the short term and that higher prices are ahead. This is a low risk trade with a potential high return. We recommend using options rather than futures due to the volatility of gasoline futures.
EUR/GBP: The Euro/Pound cross will generate a short term sell signal provided the daily high is below OIA’s key pivot point for March 30 of .86 375 and the high on March 30 has been .86616. We think the sell signal will occur in tomorrow’s trading.