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Oil soars on strong data

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Oil soars on strong data

Oil prices were one of the best performing assets during the past week, rising more than 3%, on the heels of stronger than expected demand and rising tensions in the Middle East.  The ladder was the impetus for the intial rise, but the former took over mid week driving crude oil price above $107 on a WTI basis.

Fundamental news released by both the private company the American Petroelum Institute and the Government agenecy the Energy Information Adminstration showed the crude oil stocks declined by approximately 10 million barrels in the week ending July 3, 2013.  This was the second consecutive week that crude has experienced a large draw as refiners returned from maintanance, in time to ramp up gasoline production during the summer driving season.

Not only did crude see a large draw, but gasoline stocks also declined, despite increases in production and capacity utilization.  Refiners are producing more gasoline on a year over year basis, while demand has also increased after declining for most of the spring.  According to the EIA gasoline demand increased by 2.5% year over year, while diesel demand also moved higher climbing by 7% year over year.

WTI also continues to narrow relative to European benchmark Brent.  The spread has moved from an all-time high of $23 per barrel to just under $3 as new pipelines in Cushing Oklahoma have made land locked WTI more accessable to refiners.

Crude prices will likely consolidate after climbing more than $14 dollars a barrel since mid-June. Momentum as reflected by the MACD (moving average convergence divergence) index is high, but the trajectory is beginning to flatten.  The RSI (relative strength index) which is an oscillator that measures overbought and oversold levels is printing slightly above the overbought trigger level of 70, which is a warning sign that crude oil could be ready to retrace.

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