March Crude Oil traded up to 33.60 on Thursday as the Russian Defense Ministry announced they have evidence the Turkish military is making preparations to invade Syria. The rally stalled however, as reports came in stating Syrian coalition forces have encircled Aleppo, Syria’s largest city. This city is seen as key to restoring President Assad’s control of the country from militants. The coalition has cut off supply lines from Turkey and has strengthened Assad. This could hinder any desire for Saudi Arabia to agree to any emergency meeting on production cuts. Later in the day Saudi Arabia announced they were ready to send ground troops to Syria to little effect on the market.

Reuters announced today the volatility in Crude Oil was probably fueled by the sudden liquidation of a large bearish position in the VelocityShares 3x Inverse Crude Oil Exchange Traded Note. This liquidation may have led to the unwinding of 40,000 futures contracts on Tuesday. With heavy volume in Crude Futures on Wednesday, liquidation of this trade probably continued. It seems the liquidation may have ended as Crude wasn’t able to hold the rally today. Crude dropped slightly more than $2 from the high, falling all the way to 31.53, and settling at 31.72. After the close, the electronic session traded in a tight range as traders try to figure their next move. The electronic session ended at 31.69.

 With the possible end of the liquidation of a large futures trade, and more geo-political tension that hasn’t been proven, I think Crude Oil will resume its downtrend. I would like to buy the March 28.00 – 25.00 put spread. Consider paying $270 for the spread, plus commissions and fees. In my opinion, if Saudi Arabia doesn’t agree to emergency talks, Crude Oil will test the lows at 27.56.

CLH16                            

 High 33.60                               

 Low  –  31.53

 Last  –  31.69

Pivots for 2/5/16:

R2

34.34

R1

33.02

PIVOT

32.27

S1

30.95

S2

30.20

For those interested I hold a biweekly livestock webinar on Wednesday February 17, at 3pm. It is free for anyone who wants to sign up and the link for sign up is below. If you cannot attend live a recording will be sent to your email upon signup.

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Ben DiCostanzo

Senior Market Strategist

Walsh Trading, Inc.