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Crude Oil Poised to Test Lower Levels

David Becker
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Oil prices are hovering near unchanged on Monday, after declining for most of the prior week. Hedge fund traders continued to dump long positions and add to short position which has accelerated the downward movement of WTI crude oil. Heating oil has been faced with headwinds as warmer than expected weather has blanketed most of the eastern United States, while inventories have ballooned well above the 5-year average range for this time of year.

Prices of WTI were on the defensive on Monday morning, on the heels of a consolidation that has seen WTI hit $93 dollar a barrel in November. Although most of the decline was seen in October, there has been little economic news that can be viewed as bullish for oil prices. According to the EIA crude oil inventories rose above the 5-year range for this time of year.

The most recent look at futures positions points to hedge funds traders exiting long positions while building up short positions. According to the most recent commitment of traders report, released for the week ending November 12, 2013 managed money reduced long futures and options positions by nearly 1200 contracts and simultaneously increased short positions by 9K contracts. Traders also increased short positions in heating oil contracts by nearly 6K contracts. Although this statistic could lead to a short term squeeze higher, sentiment in the oil patch has eroded.

WTI crude oil prices are hovering near the $94.40 level consolidating losses seen over the first two weeks of November. The relative strength index is printing near 37 which is on the lower end of the neutral range. Momentum on crude oil is negative but the MACD is hovering near the zero index level reflecting the current consolidation. Generally it is unwise to short a quiet market, so traders should look for a pop in prices to short crude oil, or wait for it to break below support near $93, before initiating a position.

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