Testing $35 Oil

The crude oil futures fell hard on 6-28, and were weakening in pre U.S. trading on 6-29. According to Reuters: "Market participants said renewed production in Norway after a strike and increased exports from Iraq had provided bears with fundamental justification to sell, and that the surprise handover of Iraqi sovereignty had spurred them to act."

The wire service added that: "U.S. light crude has lost more than $6.50 per barrel from a record high of $42.45 reached on June 2, as inventories build in the United States following increased OPEC production, and speculators take the increasingly bearish supply picture as a sign to sell. A 23 percent fall in U.S. gasoline prices since mid-May has relaxed refining margins, although they still remain healthy, and withdrawn another pillar of support for $40/barrel crude as fears for summer supply shortages diminish."

Supply data will be released on 6-30, with Reuters noting that "The latest weekly inventory snapshot from the U.S. government was expected to show tighter gasoline supplies, but a build on crude. A Reuters poll of seven analysts, ahead of the release of the Energy Information Administration data on Wednesday, forecast an average drop of 800,000 barrels in gasoline stocks in the week to June 25, extending a draw by that much the previous week. Commercial crude stocks were expected to show a two-million-barrel build, which would extend an uptrend to 18 of the past 22 weeks, including last week."

Oil, oil service, and natural gas stocks also had a tough day, with several leading stocks taking it on the chin.

While this is long overdue, it is surprising to some degree, given the performance of the energy stocks over the last few days. The only question now is whether this is just a retracement, or the end of a bull run. Supply data and the next few days to weeks in Iraq will certainly be important to keep an eye on.

The Philadelphia Oil Service Index (OSX) again came short of the 110 area, a long term resistance point. A break below 96.35, its 200 day moving average, could send it plummeting to the 88 area in a hurry. 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) fell back but did not totally break. 610-627 is key support. This is still a crucial juncture for the entire oil sector, as a continued failure in the near term could lead to a major top forming. A close below 600 would be a very negative technical development. 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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