Benchmark Crude Posts Strong Gain

oil-price-gainsEnergy prices jumped higher on the news of a last-minute deal by congress to avoid the “fiscal cliff” and its associated tax hikes and automatic spending cuts. Stocks surged on the news and brought oil prices 1.2% higher on the first trading day of 2013.

The Dow Jones Industrial Average gained just over 308 points to close at 13,412.55 while the Nasdaq added nearly 93 points to finish the trading day at 3112.26. Technology stocks led the day posting an advance of over 3% as investors moved money away from treasuries and into riskier asset classes.

On the New York Mercantile Exchange, benchmark futures for February delivery rose $1.30 in today’s session to close at $93.12. This represents an 11-week high for the commodity after recent downward pressure spurred by weak demand. Although the close was considerably below the day’s highs, from a technical perspective, the move could clear the way for a push toward $96 per barrel in the near future.

Wholesale gasoline also moved up in active futures trading this afternoon, rising three cents to $2.80 per gallon. In some cases, energy related stocks actually outperformed the underlying futures. Chevron Corporation (CVX)  tacked on $2.25 or 2.08% to finish at $110.39. Exxon Mobile (XOM) posted a similar advance, adding 2.5% to $88.71 and closing near the high of the day.

Economic data from China indicating a resurgence in growth after seven consecutive quarters of slowing gave support and bolstered buying activity while ongoing political tensions in the Middle East continue to put upward pressure on pricing. While a short-term rally appears to be underway, petroleum faces several potential headwinds in the first quarter of 2013 as global inventory levels remain high and the market faces a new supply push from inside the United States.

Will the trend continue? Traders may be cautious going forward as several analysts have speculated that the euphoria over the “fiscal cliff” compromise may quickly fade as the reality of slow economic growth in the United States, high unemployment rates, and the looming debt ceiling debate come back into focus. A slight pullback and consolidation of the recent gains is a strong possibility as the market digests recent news and accounts for U.S. oil inventory data due to be released on Thursday.

Overall, 2013 could see a continuation of range-bound action as fairly strong support exists near the $80 per barrel level and overhead resistance around $100 acts as a cap until some type of event gives traders and investors a clearer sense of direction. Expect a continued focus on the economic situation in Europe but also keep an eye on surging U.S. production from the Bakken Shale formation. As the production balance shifts away from the OPEC nations, a gradual loosening of their ability to control price will likely follow.

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