World's Markets Awash in Crude Oil

Earlier in the month I pointed out that Saudi Arabia and Kuwait had turned up their spigots to help ensure that the world had ample supplies of crude oil during the Iraq invasion.

But now that the output valve is turned up to high, it might not be so easy to slow the flow of oil into the world market, a factor that could continue to depress prices.

Late last week, OPEC president Abdullah Hamad Al-Attiyah said that partly as a result of the exporting group's promise to keep output high during the conflict, there's a surplus of at least 2 million barrels a day in the market. He also said the oversupply could jump to 4 million barrels a day, especially if Nigeria and Iraq resume production.

Going back on agreements and contracts is hard once they've been struck. Tankers are leased, crude oil cargos are presold and distribution deals are set. Indeed, Saudi Arabia reassured buyers in the U.S. and Europe recently that shipments will remain at current levels through May. So, although U.S. oil inventories stand about 16% below normal for this time of year, imports are on their way to replenish depleted stocks, a factor that should keep pressure on prices.

And as long as the war in Iraq keeps making progress toward completion and Iraqi oil fields remain intact, the war premium previously priced into oil will continue to dissolve, another negative.

Hourly Bars Short

On the 60-minute bars, May crude oil (CLK3:NYMEX) is in a downtrend. On Friday, the contract halted at the 100% projection of the biggest upswing (B-C) since the beginning of the month. Holding below this level will signify that bearish symmetry remains intact. The 100% projection also corresponds with the 50% and 61.8% retracements of swing highs A and C, leaving a tight cluster of resistance to initiate short positions against, with defined risk.