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Crude Futures Stuck in a Range

Rumors concerning releases of global Strategic Petroleum Reserves are keeping a cap on prices.
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The raw commodity sector's major component has not been a recent stellar performer from the bulls' perspective. Nymex crude oil prices are stuck in a trading range just above the key $100-a-barrel level. Nearby May futures prices on Thursday slumped to a fresh six-week low below $103.50. For other major raw commodity markets to uncork some significant upside power, crude oil needs to shift into higher gear.

This week, reports and rumors again surfaced regarding the International Energy Agency coordinating a release of the Strategic Petroleum Reserves of major Western nations. This week's rumors focused on France being involved in a coordinated SPR release. Last week, the rumor was that the U.S. would be involved in an SPR tapping.

Crude oil futures prices have been capped, partly because of the SPR rumors. While no official confirmation of any coordinated SPR release has occurred, many people in the market believe that where there's smoke there's fire. Indeed, in a presidential election year in the U.S., don't be surprised to see a release of emergency oil stocks sometime during the peak summer driving season in the U.S. This would not have a lasting price impact on crude oil prices, especially since the market already expects it to happen.

Another fundamental worry for liquid energy market traders has been a steady drumbeat of prognostications that China's economy is slowing down. That has put downside price pressure not only on crude oil but on other commodity futures markets. However, the degree to which China's economy is slowing -- if it is at all -- remains unclear. Most China watchers agree that that nation's annual gross domestic product growth will still be north of 7% this year. It's hard to argue that such a figure can be commodity-market bearish for what is already a commodity-consuming juggernaut.

On the Persian Gulf front, the bombastic rhetoric between the U.S. and Iran regarding Iran's nuclear program has died down recently. However, the situation continues to simmer and could boil over at any time. Any further de-escalation in the standoff would likely quickly send Nymex crude oil futures well below $100 a barrel. Conversely, a sudden escalation in that situation, such as military action, would quickly send crude prices to $115 or $120 or higher.

Technically, Nymex crude oil prices have been trading in a choppy and sideways range on the daily chart for the past month. However, the bears can also correctly argue that prices are in a four-week-old downturn on the daily bar chart. May crude oil futures hit a 10-month high of $110.95 a barrel on March 1 and have traded sideways and choppy on the charts ever since.

It will take multiple daily closes in nearby crude oil futures above technical resistance at $110.00 to provide the Nymex crude oil bulls with fresh upside near-term technical momentum to then suggest a fresh trend higher in prices. Otherwise, look for Nymex crude to trade in a choppy and sideways range between $100 and $110 for at least the coming weeks, if not longer.