Over recent trading sessions we have seen selling in gold, copper backed off from its short-term high, the dollar has been edging higher, and stocks have been threatening to correct to the downside. However, the price of WTI crude oil has been hanging in there at over the $56 per barrel level.
Crude oil has been a tale of two benchmarks as Brent crude is trading at an almost $8.75 premium to WTI on the May futures contracts. The Energy Information Administration has reported that US output is at a record high of 12.1 million barrels per day as shale crude oil continues to flow. OPEC production cuts have limited the amount of production from the cartel members and the Russians if they are sticking to their 1.2 million barrel per day cut. The price action in the energy commodity is looking like oil is now consolidating near its highs for 2019.
As the weekly chart of WTI crude oil highlights, the price has settled into a trading range between $55.02 and $57.88 per barrel since mid-February. On March 5, the price was at the $56.56 level in the middle of the narrow trading range. The slow stochastic, a price momentum indicator, has risen into overbought territory, but it continues to display a bullish price trend. Relative strength is at just over 53 which is a neutral reading. Weekly historical volatility dropped from over 47 percent at the start of 2019 to its current level at under 28 percent which reflects the narrow trading range in the energy commodity.
Crack spreads or the margin for refining a barrel of crude oil into oil products are supportive of the price. The gasoline crack spread has increased from $12.10 per barrel at the end of January to $17.58 as of March 5 as refineries prepare for the upcoming driving season in the US. Meanwhile, the heating oil crack spread which is a proxy for distillate products moved from $24.16 on February 1 to its current level at around $28 per barrel. When crack spread rise, it is a sign of demand for oil products. Since crude oil is the primary ingredient in the production of gasoline, heating oil, diesel and jet fuels, and other oil products, higher refining margins often translate into higher oil prices.
The move from $76.90 per barrel on October 3 took the price of oil to a low at $42.36 in late December. Since then, crude oil has been recovering and is now sitting just below its most recent high. The 50% retracement level of the move in late 2018 stands at $59.63 per barrel which could act as a magnet for the price of the energy commodity over the coming days and weeks. Keep an eye on crude oil over the coming trading sessions. The most liquid commodity is still in recovery mode, and the bullish trend that started with the low in December looks set to take it higher for a test of its technical resistance that is just below the psychological $60 per barrel level.