Today’s announcement that Saudi Arabia has severed diplomatic ties with the US due to inaction on Syria. This helped precipitate a 4 month low, with December crude trading at 96.16 today, which is a 4 month low and 4 dollars below the key psychological $100.00 barrel level. Typically oil above that level gets politicians wanting to tax oil companies and raise gas taxes. Recent high was $110.00 a barrel, coming in late August with the un-rest in Egypt which was a 5-year high going all the way back to September of 2008. that was a contract high for Dec Crude, btw.
Flash back to the high tick at 142/ barrel in July of 2008 if you want some perspective.
Please look at the chart below which is a weekly chart of CLZ13. There is a major support trendline down at 88.65 on the chart and extending to 90.00 projected out til jan 2014. That suggests that there may be a further decline of at least $6.00 barrel. How to play it?
Buy some 90 puts. Or, if you have the margin.. sell rallies with tight stops in the futures.
At the very least, we look to have some downside work towards 92 to 91.
With the increased production of oil and gas coming from the U.S, this technical picture lines up with the fundamental stories as well.
Another 5 to 6 dollar break in crude oil will have to have downside pressure on corn and beans. If the price of oil drops, it should make the ethanol math problem less attractive. If there is a decrease in corn demand for ethanol that could negatively impact the bulls in corn. Perhaps this is one reason the funds are still massively short corn. That may be a position they roll for another 2 or 3 quarters looking for that longer term play.
If you are a speculator or a producer and are looking for a bull story, this would have to enter into your calculus for deciding how long to hold longs in the face of a correction.
It would be classic buy the rumor sell the fact for us to have posted a 5 year high just 2 months ago, followed by a protracted sell off to squeeze out the bulls.
Food for thought.
CER