Oil Plunges Lower Thursday

NEW YORK (DTN) -- New York Mercantile Exchange oil futures plunged Thursday morning with crude contracts punching through key technical support to the lowest levels since Nov. 30.

"Based on our charts, once West Texas Intermediate thru major support last week at $50, things were going to go down, and the March low at $47.01 was the last hold out, and now with that out of the way, there's nothing left on the way down until you get to the [targets] at $45 and $42," said Elaine Levin, president Powerhouse, a Washington, D.C.-brokerage firm.

She added, "The market doesn't look oversold, so we still have a way to go down, as momentum is still with the bears. The charts are pointing lower."

Others concurred with that analysis.

"The market is going to be in a lot more trouble," said Kyle Cooper at IAF Advisors in Houston. "It would increase pressure, generating more sell signals with a lot more traders moving from long to short."

At last look, NYMEX June WTI futures had dropped $1.11 to $46.71 bbl, off a $46.60 five-month low on the spot continuation chart. The June WTI contract is trading at s 37cts premium to July crude oil futures, while the trans-Atlantic Brent-WTI arbitrage has expanded to a one-month high, with WTI posting a $3.02 discount to Brent on the ICE complex.

The July Brent crude futures contract tumbled $1.06 to $49.73 bbl, near a $49.60 five-month spot low after clearing the $50 psychological mark, and the contract is now challenging $49.71 technical support, with the next target at $42.75.

The selling was triggered by the Energy Information Administration's latest weekly data showing U.S. crude production continued higher in the week-ended April 28, undercutting efforts by the Organization of Petroleum Exporting Countries to rid the market of excess global oil supply.

The current quota scheme ends in June and Reuters reported on Tuesday that compliance with quotas fell 2% to 90% in April. OPEC said last week that compliance was up 4% to 98% in March.

"The U.S. has been adding about 20,000 bpd every week for the past two to three months, which translates to 0.8 for every barrel OPEC takes out of the market, and we are not slowing down on production," said Cooper. The longer it takes OPEC to cut global supply the more likely traders who are bullish now will opt to sell because doubts are growing and people are getting concerned. The outlook is bearish."

NYMEX June ULSD futures declined 2.88cts to $1.4448 gallon, near a five-month spot low of $1.4423, with the contract expected to next test support at $1.4148. June RBOB futures tumbled 3.69cts to $1.4969 gallon, near a $1.4930 two-month spot low and taking an aim at the $1.4650 low posted on Feb. 8, analysts suggest.

George Orwel can be reached at george.orwel@dtn.com