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Contract Expiration Tempers Oil's Rise

The June West Texas Intermediate contract reflects selling pressure ahead of Tuesday's expiration. But stocks in the sector are generally trading higher.

Updated from 12:44 p.m. EDT

Crude futures moved 70 cents higher in early morning trading on the New York Mercantile Exchange Monday, but were lately in retreat as traders made last-minute adjustments ahead of Tuesday's expiration of the June West Texas Intermediate contract.

Texas light crude for June delivery was recently 26 cents lower at $126.03 a barrel, while Brent crude was losing 65 cents to $124.34 a barrel. Reformulated gasoline was down a hair at $3.22 a gallon, and heating oil was losing 3 cents at $3.68 a gallon.

Near-term natural gas was trading 2 cents higher at $11.11 per million British thermal units.

The June WTI contract will expire after the close of Tuesday's trading session on the Nymex, allowing the July contract to roll into the near-term spot. As the point of expiration looms, speculative traders must exit their long positions in the near-term contract or they will assume ownership of the raw oil associated with their futures holdings. Thus, the near-term contract tends to submit to selling pressure immediately ahead of its expiration date as money flows into the following month's contract.

Confirming the short-term tactical move away from the June WTI contract was the 46,000-lot plunge in net-long positions revealed last Friday in the Commodity Futures Trading Commission's weekly Commitment of Traders report.

"We therefore could see prices stall a bit both today and tomorrow, before open interest starts to build again towards the end of the week," according to MF Global energy analyst Edward Meir.

However, aside from the issues surrounding June WTI's expiration, both fundamental and technical indicators suggest that oil's trend line is pointed securely upward, Meir says. Last Friday's announcement by Goldman Sachs predicting that the price of oil will average $141 a barrel in the second half of 2008 appeared to eradicate the few remaining oil bears still playing the field.

President Bush's visit to Saudi Arabia over the weekend is adding to the bullish sentiment. Saudi officials made Bush squirm when he pleaded for the second time in three months that they increase oil exports, waiting for him to leave in apparent defeat before agreeing to a paltry 300,000-barrel-per-day export increase.

According to Meir, "there is little indication that we are on the verge of a major price breakdown; with charts looking solid, the dollar still weak, CFTC net noncommercial positions well short of previous record highs, and the Saudis having escaped the Bush visit by reluctantly throwing the U.S. president only a token bone in terms of extra production, the push higher could resume once the June expiration is behind us."

Meanwhile, energy stocks are ignoring the short-term tactical move out of near-term crude and are instead riding bullish momentum and strong trading volume to higher price levels in the Monday session.

Among integrated stocks,


(COP) - Get ConocoPhillips Report

is gaining 1.6% to $93.44,


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(CVX) - Get Chevron Corporation Report

is up 2.3% to $102.67,

Royal Dutch Shell


is 2.2% higher at $85.16, and


(XOM) - Get Exxon Mobil Corporation Report

shares are up 1.5% to $94.08.

Exploration and production stocks are also moving to higher ground.


(APA) - Get APA Corp. Report

is up 1.8% at $146.00. Natural gas producer

Chesapeake Energy

(CHK) - Get Chesapeake Energy Corporation Report

is gaining 1.5% to $59.66, and

Devon Energy

(DVN) - Get Devon Energy Corporation Report

is adding 2.4% to $124.29.


U.S. Oil Fund

(USO) - Get United States Oil Fund LP Report

, an exchange-traded fund that tracks the sector, was recently sliding fractionally lower at $101.86.