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Mini-Money Monitor: Crude to Crumble?


US Crude Oil supplies have soared this year, and, are nearing historically high levels.

I bailed on my long Gasoline exposure yesterday and thus am standing down from my bullish stance on the entire energy sector. For sure, the pure supply-demand dynamic (ex-geo-political risk pricing) in Crude Oil is just not bullish, as is clearly defined in the chart on display below which reveals that US Crude Oil supplies have soared this year, and, are nearing historically high levels.

Note the plunge in US supply earlier this decade, to below 280 million barrels (280.00 on the chart), which generated deep backwardation in the NYMEX calendar strip. Indeed, that situation has given way to the current scene defined supply in excess of 340 million barrels, thus helping explain why the strip broke down yesterday and hit new contango lows, as seen in the chart.

In fact, I can trace the move from backwardation (nearby contract price premium, indicating a short-fall in supply, or robust physical demand) into contango (nearby price discount to deferred contracts, indicating an amply supplied market) back to the fall of last year.

Referencing the Crude Oil supply chart, I observe that the flip into contango occurred at the same time total US supply rose above 320 million barrels and I can see that as supply has climbed, the contango has deepened to the point where it made a new move low yesterday.

Technically, the flat-price June contract for West Texas Intermediate Crude has a double-top look as noted in the chart below, with key support identified between $72.50 and $70.75. A breakdown below the $70.75 pivot would be negative.

Moreover, note a potential triple-top in ExxonMobil (XOM), and waning momentum in the AMEX Oil and Gas Index.

Bottom Line: I am now neutral on the energy complex.
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