The EIA data showed that U.S. crude oil field production is down a mere 4.19% from a record high this summer, as the U.S. still produced 9.202 million bpd for the week ended November 27, 2015, compared to a 30-year record high of 9.604 million bpd reported in the week ended July 3, 2015. This is despite that the U.S. oil rig count fell to 545 for the week ended December 2, a 66.13% drop from the peak number of 1,609 in October 2014, according to Houston-based oilfield services company Baker Hughes Inc.
Societe Generale SA analysts told Bloomberg at the end of November that the crude oil market is in contango and it isn’t going away anytime soon due to the shortage of storage capacities and a rise in storage costs. Contango refers to a situation where the front-month or near-term futures contracts are trading less than or at a discount to longer-dated futures contracts, as traders are willing to pay more for a commodity at some point in the future than the actual expected price of the commodity. The higher the spread move, the wider the
contango. In tightly-supplied markets, when crude oil prices are strong, that spread value is the complete opposite.
As of December 1, there are 251,057 long positions of light sweet crude oil futures, traded on the New York Mercantile Exchange (NYSE) by managed money or hedge funds, an increase of 996 long positions from the previous week, according to the Commitment of Traders (COT) data released by the Commodity Futures Trading Commission
(CFTC) each Friday. This is compared to about 171,805 short positions, an increase of 6,852 short positions from the previous week where light sweet crude oil contracts are traded in units of 1,000 barrels. Hedge funds continued to increase their net short positions by about 5,856 contracts, as they are betting that the crude oil price could go lower.
From our technical viewpoint, the crude oil price just broke the $37.75 per barrel support level, or the August low, and has been continuing its downtrend in a bearish lower low chart pattern, meaning every low (L) is lower than the previous low. In order to establish an
uptrend, the crude oil price needs to break out and stay above the October high of $50.92 per barrel level. There are walls of resistances between the current price and that October high, though.
The volatility associated with the oil futures contract rollover, from the January’16 to the February’16 contracts, could pick up soon, as the contract for January’16 will expire on December 21. The next technical supports are at $34.50, or the May’10 trendline support, and at $33.55 per barrel, or the February’09 low, if the crude oil sell off continues.