Nymex Crude Oil continues to rise, here’s why

This week ended the recent pullback for Nymex
crude oil as supply concerns for crude oil and gasoline were propped up by
refinery problems and more violence in the Niger Delta. While the most recent
Department of Energy report on inventories suggests that supplies are rising for
both crude oil and gasoline, most traders seemed to focus more heavily on the
demand picture that continues to come in bullish.

The most recent refinery issues come from Valero Energy Corp.
Quote |
Chart |
News |
their recent announcement that they will be shutting down 15,000 barrels a day
of gasoline production in order to complete repairs on the Texas City, Texas
refinery. This obviously has traders on the edge as we head into the driving
season that begins in late May. This is typically the time of year when refiners
are building supply ahead of the seasonal demand spike. These most recent
concerns have the Nymex crude oil futures market trading more than $5.00
($73.90) higher than the recent lows on Mondays session when Nymex crude oil
traded as low as $68.25.

The geo-political picture continues to be checkered to say the least and the
most recent news out of Nigeria continues to stoke fears of more supply
interruptions out of that region. The MEND rebels (Movement for the Emancipation
of the Niger Delta) are denying involvement in the recent shooting death of a
foreign oil worker in the region. Nevertheless they are threatening more
violence if their demands for domestic only workers are not met. Over 25% of the
production of light sweet crude oil in the region has been interrupted by rebels
associated with MEND. The production from this region is very hard to replace
because the excess capacity from other producers is of a much heavier thereby
lower quality grade. Nymex crude oil prices are greatly affected by losses of
this type of production.

While the front month contract for Nymex crude oil is on the rise, there are a
couple points of resistance ahead (74.99 and 75.35) that will need to be met
with growing concerns on the fundamental front in order for this market to push
through. There is also a bit of trendline resistance forming here and I’m
waiting for the market to violate that trendline (just above 74.90) before
getting long again.

Matt Odom is Energy Analyst/Principal Broker for Odom &
Frey Futures & Options, LLC. Odom & Frey is widely known as a leader in Option
Spread Strategies on the futures markets and provider of specialized in house
research and commentary. You can find Matt Odom daily throughout the investment
news arena including SmartMoney Futures TV in his “Crude Remarks” segment
where he brings traders into the fold on the latest trading action in the energy
complex. He is also co-author for O&F News & Views, a weekly trading newsletter
read by over 10,000 market enthusiasts each week. You can find this commentary
at www.odomandfrey.com email:
matt@odomandfrey.com phone: