Oil Market Summary And Outlook: Chavez Wants Out Of U.S.

Oil stocks broke out in a big way on 2-1, despite falling crude prices. No damage was done to the futures, which remained above $47 in pre U.S. trading.

Supply data will be out mid morning, and is almost certain to move the markets. As the weather warms up, heating oil issues are likely to be replaced by gasoline issues, as traders switch focus on the data. According to Marketwatch.com: "Most estimates call for an increase in the nation's crude supplies and a decline in distillate stocks."

Venezuela's president Hugo Chavez wants to sell his country's eight U.S. refineries. Chavez, in a speech in Argentina made it clear that the ideological differences between his regime and the U.S. have reached an impasse, citing the fact that he wants to stop "subsidizing Mr. Bush" as the reason for the change in his business plan.

As we noted here recently, Chavez is developing a plan to sell more oil to China. Russia is now involved in Venezuela's natural gas sector.

Venezuela's state oil company PDVSA owns CITGO, the highly visible retail gas station chain in the U.S. The eight refineries account for 4% of U.S. refining capacity. Venezuela supplies 11% of the oil used in the U.S. The U.S. buys 50% of all Venezuelan oil.

Crude oil futures remained in a trading range with the 50 day moving average at 45.62 offering support and the $49.66-$50.27 price band offering key resistance. Long-term support remains at the $40-$42 area, and the 200 day moving average.

Oil service stocks again closed higher, but did not deliver a close above 130, although they closed above 129. The key is still what happens at the 128-130 area on OSX. If this group does not fall apart, it will likely signal that crude future prices are not about to crater, although they may stabilize near the $40-$47 area.

More important is the possibility that the longer term, crude oil prices may have reached an equilibrium between the $40 and $55 area. This is a broad trading range, though, that will almost certainly provide trading opportunities.

The Philadelphia Oil Service Index (OSX) closed above 129 on 2-1. Volatility will likely increase here in the next few days. For more details on trading the energy sector visit our energy timing page, featuring our highly effective OIH timing model and our Top Ten Energy Stock List.

The Amex Oil Index (XOI) delivered a chart break out on 2-1. XOI remained above the 50 day moving average, suggesting that prices are getting ready to attempt a move up. For immediate analysis, including stock picks, and the latest in technical analysis of the entire energy complex, our subscriber section has a full complement of recommendations in oil service and the rest of the energy complex.

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Brent Crude Oil : $50.47/BBL 0.98%
Light Crude Oil : $49.72/BBL 1.09%
Natural Gas : $2.76/MMBtu 1.09%
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