From one of Slope's own readers, The Energy Analyst, here's the latest.... It was tough for Slope to call a top in crude last Friday
morning, but this morning (Monday May 12) looks better with crude trading down
between $1-$2 per barrel in pre-market. Ostensibly, the catalysts are USD
strength versus Yen with USD now up 1% and overnight data from China on lower
April crude imports. However, the real driver is more likely that oil was up for
six straight days thru the end of last week, rising over 8% during that period.
Profit-taking in crude is clearly overdue. Interestingly, Yen was up (dollar
down) for six straight days prior to this morning. So, that trade was due for a
reversal, as well. Energy stocks likely to open weaker with DUG now up 2%. OIH
looks weaker driven by slippage in SLB in Europe. In sum, DUG looks okay as a
near-term trade on a slight negative shift in sentiment on energy and may have
potential back to the recent mid-30s range.
The real issue is whether oil can stay down. The first fib
line is at $111, which also happens to be the 50-day MA. The 100-day MA is at
$102. Note that oil has not traded below the 50, or 100 day moving averages
since early February. These are key levels to watch, but may just be a bridge
too far right now. Overall, news flow still supports crude with reports that
ENI may have to delay the worlds largest oil project (Kashagan) by another two
years out until 2013. Initial volumes here are targeted at 370,000 barrels per
day (b/d). Also, Chinese oil imports may have been down y/y in April, but are
still up 10% year-to-date. (Note that monthly data is not that meaningful for
discerning real trends, in my view). The collateral damage from higher oil still
has not been fully discounted and is actually just beginning note FedEx this
AM. The S&P may be relieved short-term if oil drops to $110, but the
economic impact will still be a real negative at such levels on a longer-term
basis.
