Crude Oil and Refined Products have been in a trading range for 2 1/2 years, since Apr11. During that timeframe, prices have been supported by spurts of good economic news or middle east unrest, only to be reversed with bouts of poor economic news or talk of geopolitical breakthroughs. Gasoline prices at the pump have several times tested that critical $4/gal level – the point at which consumer behavior shifts into conservation mode.
It appears the petroleum sector is poised to break out of its 2 1/2 year trading range. However, we’re getting mixed signals regarding direction …. lets take a look at the charts.
Crude Oil has broken above the downtrend initiated by its all-time 2008 high. Critical points of support in order to maintain the up-trend are the $98.25 level (test of the Sep12 intermediate high) and the low $90’s (test of the long running downtrend). Failure to hold these levels of support would suggest another hard down leg for Crude Oil.
Gasoline has moved into its off-season following the Labor Day weekend. Prices seem to be documenting that fact with a break below the lower trend line of the 2 1/2 year consolidation range. Support lies at the $2.45 and the $2.10 levels. See chart below:
Heating Oil continues to trade within its 2 1/2 year trend bounded by the $2.65 – $3.35/gal range. Of course, Heating Oil is moving into prime season.
So let’s summarize … we currently have one breakout to the upside (CL), one to the downside (RB), and one undecided (HO). The direction will likely be determined by Crude Oil.