A possible bottom of Crude Oil?

Having kicked off this blog only a few weeks ago, readers might have noticed there has barely been a mention of price direction views. While SFOT is a relative value driven trader, he occasionally dips into flat price via technical signals or flows. There is nothing significant showing up on his proprietary price indicator now, however, the continued relative movements of differential within the energy complex may give a clue that we are approaching a bottom in price. Fuel oil cracks are gaining strength fast, and this is a direct result of less sour crude availability.

As we enter into the March OPEC meeting, noises from the smaller members points to another round of substantial cut. However we have yet to hear much from the one that matters, Saudis. Whether they do anything or not probably will not stop the fact that crude inventories globally, bar the US, is starting to clear out. It may still be a while but it is happening right now. The Brent-Dubai spreads and Fuel oil cracks are telling signs, in my view, that the market is tightening. However, demand is still weak. Middle distillates continue to weaken vs crude, while Gasoline and Naphtha have come off as well. Refining margins have recovered but still remain fairly high and refiners will work their economics to maximise profit, i.e taking more sour crude and less sweet. With this in mind, SFOT does not think Brent crude will fall below USD30 nor rise above USD 60 in the forseeable future( 1 day? 1 week? 1 month? 3 months?). However, he is fairly tempted to dip his toes into buying some upside on Dec09 Brent.