Oil Update, Revisiting 2008 Oil Peak, S&P/Oil Divergence, Inventories Down (Charts: Oil Futures, USO, $USD, XLE)

Remember in early 2008 when oil diverged with the S&P?  The S&P peaked in October 2007 just as oil was building momentum.  Crude went from $100 to $147 where it peaked in mid 2008 right before the banking crisis (see post on 7/11/2008: Oil touches $147: USO/XLE Charts/Options Analysis).  It was interesting that the divergence between USO and XLE tipped off the oil peak.

Today the S&P just about doubled from the March low and crude oil securities have either pierced through multi-month ceiling resistance levels or are battling them as we speak.  Light Sweet Crude (continuous contract) closed today at $86.80.  It is close to the 50% retracement level (91.42) using the 2008 peak and 2009 trough and pierced through January resistance.  I'll zoom in on $WTIC below.

$WTIC (Light Crude Oil Contract - courtesy of Stockcharts.com)

Check out the May (CLK10), June (CLM10) and July (CLN10) crude oil futures.  They all pierced through ceiling resistance and are riding an upward triangle in a point of serious inflection.  It looks like January is the new floor (for now) to hedge or stop a failed upside bet, like SPX $1,150 currently (imh opinion).

CLK10 Crude Oil May 2010 Future (courtesy of optionsxpress)

CLM10 Crude Oil June 2010 Future

CLN10 Crude Oil July 2010 Future

$WTIC (West Texas Intermediate Crude) broke through January resistance and is riding an upside channel.   USO (Oil ETF) hasn't pushed through the ceiling yet.  Nor has XLE, the energy sector ETF.  Like I said above, in 2008 XLE broke down before before oil peaked.  Right now XLE is at the verge of breaking out.  I'm not saying energy stocks are smarter this time, just an observation.

$WTIC (Light Crude Oil)

$USO (United States Oil Fund)

XLE (Energy Select SPDR)

Now look at the recent US Dollar channel and 50 day moving average breakdown.  EUR/USD recently broke through the 50 day moving average to the upside with EU Greece bailout shenanigans.  Whether Oil/USD wants to move inversely again or not, they started to on April 12.  Watch to see if the US Dollar can hold below the 50dma.  Also watch the MACD zero center line for a cross.

$USD/$WTIC 4 Days +/- 1.65%

I was also watching the USO resistance level on April 8 and April 10.  June crude oil is trading at $87 right now.  If oil continues to rise when will it start to squeeze the US recovery and China?  Remember that inflation, the US Dollar, global oil demand (China's guzzling, peak demand?),  production (peak oil 2015?), inventories and Middle East turmoil affect the price.  When oil hit $147 there were conflicts in the Middle East (from post).  Today the EIA (Dept. of Energy) reported that US Crude Oil stocks (inventories) were down 2.2 million barrels to 354 million over the previous week and down 12.7 million barrels from a year ago.  Days of supply as of 4/9/2010 was at 24.5 compared to 25.1 last week and 25.9 a year ago. What happens next? Does oil spike and punch the market in the face or will they move in tandem to the upside/downside. If they move in tandem, and you're not short term trading, is between now and May the 3rd best time to sell *stocks (and crude?).

Crude Oil Stocks (Million Barrels) and Days of Supply (Graphic at eia.doe.gov)