Is Oil Headed for Another Breakout?


Crude oil is pushing its highest level in almost three years as the market prepares for a big news on Iran. Is another breakout coming?

TradeStation shows Nymex crude oil futures (@CL) up almost 2 percent to 69.70 this morning. If they hold those gains, it would be the highest close since July 2015. Back then, energy was crashing as the global economy slowed. But this year, it’s been ramping as growth accelerates and the Saudis impose a new discipline on OPEC.

And then there’s Iran. U.S. President Donald Trump must decide by May 12 whether to undo the controversial 2015 nuclear pact brokered by predecessor Barack Obama. Trump says it does too little to prevent the terrorist state from developing nuclear weapons. Traders know his tough-guy approach worked with North Korea, so they increasingly expect the White House to scrap the deal. The result will be trade sanctions against Tehran.

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Analysts estimate such a step could remove as much as 1 million barrels of Iranian crude from global supplies, which is why @CL’s been on the rise.

Equity investors have already been following the trend by bidding up the SPDR Energy Fund (XLE) 8 percent in the last month. No other major sector ETF holds a candle to that kind of return.

Commitment-of-traders data from the Commodities Futures Trading Commission also shows oil drillers no longer increasing their sales of forward production. That comes despite rising U.S. output, and may signal that even company executives are feeling bullish about crude.

Crude Oil (@CL)
Crude Oil Futures (@CL), weekly chart, with commitment of traders data
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David Russell is VP of Market Intelligence at TradeStation Group. Drawing on nearly two decades of experience as a financial journalist and analyst, his background includes equities, emerging markets, fixed-income and derivatives. He previously worked at Bloomberg News, CNBC and E*TRADE Financial. Russell systematically reviews countless global financial headlines and indicators in search of broad tradable trends that present opportunities repeatedly over time. Customers can expect him to keep them appraised of sector leadership, relative strength and the big stories – especially those overlooked by other commentators. He’s also a big fan of generating leverage with options to limit capital at risk.