Will Crude Crack Resistance?

From the desk of Steven Strazza @Sstrazza and Ian Culley @Ianculley

A few weeks ago, we pointed out widening crack spreads and what they meant for oil refining stocks. You can read more here, as we explain how wider crack spreads support higher prices for this particular area of the market.

Three weeks later, crack spreads have widened to their highest level in more than a decade.

This post is not about crack spreads, though. It’s about energy and how everything in the space is working these days. 

Bullish rotation continues to be the theme for energy.

This week, gasoline was the standout, booking a 10% gain and breaking out of a massive base to new all-time highs.

Let’s take a look at the breakout in gasoline futures and discuss what it means for crude oil.

Here’s a chart of gasoline futures:

Gasoline futures have consolidated just below a key extension level since the beginning of the year. Today, they’re on pace to finish the week at new all-time highs on a closing basis.

We want to be long on a decisive close above 3.40, targeting 5.20. 

With crack spreads printing fresh highs as well, we think it’s just a matter of time before crude oil follows its derivatives higher.

In fact, when we zoom out on both gasoline and heating oil, we’re looking at monster bases that date all the way back to 2008.

If these bases resolve higher, what do you think crude oil is doing? 

We think it’s safe to say that black gold is likely to challenge its 2008 highs in the near future as well.

Here’s a daily chart of crude oil futures:

The crude oil chart looks almost identical to the daily chart of gasoline futures. It’s coiling below a critical extension level that's acted as resistance and looks poised to break higher. 

If and when it does, we want to be buyers on strength above 113.15 with an upside objective near 172. That would put us at fresh all-time highs.

As of this writing, crude is pushing toward 110. We could see a breakout in the coming days, so we want to have our stop orders in place.

We’re already seeing bullish price action take hold in its derivatives.

Now that we’re starting to see follow through in gasoline, we want to lean into the next leg higher in energy contracts – especially crude!  

Be sure to check out our Trade of the Week below, where we highlight a commodity related stock from our stock and ETF scans each week.

Today, we’re going to stay on topic by outlining one of the industry’s leading oil refiners! Check it out.

COT Heatmap Highlights

• Platinum: Commercials hold their largest long position in almost three years.
• Orange Juice: Commercial hedgers' net short position remains less than 5% away from a three-year record extreme.
• Palladium: Commercials hold a net long position within 10% of a three-year extreme.
• Minn. Wheat: Commercial hedgers extended their short position to just 10% away from a three-year record.

Click here to download the All Star Charts COT Heatmap.