RE: Poll2 Mar 2022 19:17
CRUDE ON FIRE, BUT IS THE CANDLE BURNING LOW? (1400 EST/1900 GMT)
Oil prices surged beyond $110 per barrel on Wednesday as traders scrambled to seek alternative sources due to supply disruptions after sanctions on Russian banks amid the intensifying Ukraine conflict. Additionally, U.S. crude inventories fell unexpectedly, underscoring the already tight market.
NYMEX crude futures are up nearly 20% for the week, and 45% this year. With this, energy is the best performing major S&P 500 sector in 2022 with a more than 30% advance.
With crude on fire, energy stock strength is hardly seen as a surprise given the sector's very strong positive rolling 10-week correlation with the commodity futures. It currently stands at 0.92 (1.0 being a perfect positive correlation).
On the charts, the futures are trading at 1.88 times the level of their 200-week moving average (WMA):
Using Refinitiv data back to early 1987, the futures have ended a week more than 1.85 times the level of the 200-WMA just 16 times, or less than 1% of the 1,832 weeks over this period.
Additionally, around the time of the first Gulf War, in September 1990, the 200-week disparity briefly spiked to a high of 2.08. In July 2008, during a wild blow-off in crude prices amid a peak oil panic, 200-week disparity topped at 2.07.
Both instances marked major highs for crude. If the disparity were to quickly reach the 2.07/2.08 area again, it could put NYMEX crude just over $120.
Crude has yet to show a bear turn, and it would remain to be seen if the resistance line across the prior major disparity peaks would cap strength. In any event, crude appears to be at a historically stretched level vs the long-term moving average, and therefore it may be especially ripe for a reversal.
Meanwhile, S&P Global is saying that short bets against energy stocks have risen to their highest level in more than a year.
(Terence Gabriel)
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