Crude Oil Price Chart 23 Sep 2009

Oil Prices 23 Sep 2009

Once again, daily oil prices repeated their familiar pattern within the current trading range, reversing the previous day’s fall, with a strong move higher, a move I suggested might happen in my daily oil commentary of yesterday.  This constant whip saw in daily oil prices is extremely difficult to forecast, making oil trading a hazardous occupation at present, and until we see a breakout from the current pennant pattern which is now forming, then forecasting from a technical perspective is difficult to day, to say  the least. The only thing one can say with any degree of certainty is that at some point we will see a dramatic breakout in daily oil prices, and given the series of higher lows that seem to be forming on the oil chart on a daily basis, this would suggest that the break will be to the upside, and could well mirror that of the spot gold price market of two weeks ago, with a sudden and dramatic move higher. With the pennant pattern now firmly established and with the point forming somewhere around the $70.50 per barrel price handle, we now need to wait for the inevitable breakout, which will then set the tone for daily oil prices moving forwards in the medium term. The key level will be the previous high at $75 per barrel, and should this be breached then we will have a solid platform for crude oil prices to move firmly higher in due course. One of the best ways to trade this technical set up is using a long straddle option strategy which in essence is a directionless trade, but one that benefits from market volatility. The key decision in the straddle is the length of time to expiry of the options which will, of course, expire worthless should the breakout not occur within the anticipated time. With the current pennant set up having been forming for some time now, my suggestion would be to look for 3 months options, which would then have sufficient value remaining should daily oil prices continue to consolidate for a sustained period, allowing you to sell them back to the market negating some of the loss on the trade. Here is explanation of  straddle option strategy.

On the fundamental news front today we do also have two major items of news which could well impact daily oil prices dramatically, with the weekly EIA oil stats, closely followed by the FED decision on interest rates and their accompanying statement on future monetary policy as we begin to bottom out of the current recession. No doubt all the markets will be watching and waiting for this key statement later today, and any US dollar positive signals could impact daily oil prices dramatically as a result, even to the point where we could see a breakout occur this evening.  Overall WTI oil contract closed the oil trading session at $71.55 having opened at $69.67, reaching a high of $71.85 & low of $69.61.  Oil futures contracts 218k as traders roll over in anticipation of expiration.  Meanwhile Brent closed its session at $70.53, having opened at $68.84, reaching a high of $70.75 and low of $68.82. Oil futures contracts:105k.