Crude oil prices and energy stocks plunged Tuesday on news that Israeli forces and Hamas militants will cease fire in the Gaza Strip after nearly a week of turmoil. But the two sides have yet to reach an agreement and conflicting reports abound.
West Texas intermediate crude oil, traded in the U.S., for January delivery fell 2.71% to $86.86 a barrel. Brent crude oil, traded overseas, dropped 1.82% to $109.67 a barrel.
In afternoon trade,United States Oil Fund ( USO ), the largest ETF tracking WTI crude, burned off 2.63% to 31.82 as it erased nearly all of its gains from Monday. It has been trending lower steadily since March and has been trading below its key 200-day moving average since May, which is very bearish.
United States Brent Oil ( BNO ) lost 1.54% to 80.54. It dipped back below its 50-day average after briefly breaking above it Monday. It's been trading in a sideways range since August and looks trendless.
United States Gasoline ( UGA ) sank 1.72% to 56.71. It appears to have hit price resistance at its 50-day moving average.
Energy Select Sector SPDR ( XLE ), tracking energy producers in the S&P 500, slipped 0.87% to 69.92. It appears to have hit price resistance at the 200-day moving average, which looks bearish.
IShares S&P North American Natural Resources ( IGE ) skidded 0.89% to 37.23. It has a similar bearish chart as XLE.
Waverly Advisors recommends shorting oil, to profit from falling prices, if it breaks below prior support on the daily chart. This level sits at $84 a barrel for light-sweet crude oil.
"We see potential downside on crude oil to the high 70.00 range, and no clear uptrends," Waverly wrote in a client note.
"We could easily see crude mired in a large range (say, $80 to $100 a barrel) for many years, and see little justification for heavy long exposure."
Bill Strazzullo, chief market strategist at Bell Curve Trading in New Jersey, recommends buying January crude oil futures at $87.50 with a stop loss at $86.20 a barrel. He recommends closing the position if it reaches $91.50 to $93 a barrel and shorting at those levels.
Price support lies at $31 a share for USO. It would take a break above 33 a share to change USO's trend from negative to positive, says Zev Spiro, CEO of Orips Research in New York.
World Oil Demand
Global oil demand rose to a new record high of 89.8 million barrels a day on average during the 12 months through October, 0.9% higher year over year, according to Yardeni Research, which released a "Global Oil Demand & Supply" report Tuesday.
"Thankfully, it's not turning negative, which would indicate that the global economy is falling into a recession," Ed Yardeni, president of Yardeni Research, wrote in a daily client note.
Falling U.S. and European demand was offset by rising demand in Japan. Emerging market demand rose to a record high of 52.3 million barrels a day. Record demand was seen in China, India, OPEC (Organization of the Petroleum Exporting Countries) and most countries in Latin America.
The International Energy Agency has cut its fourth-quarter demand estimates to 90.1 million barrels per day, owing to weakness in Europe and the impact of Superstorm Sandy.
World Production And Stockpiles
OPEC output dropped to the lowest level in a year in October at 36.9 million barrels a day.
U.S. production climbed by 500,000 barrels a day to 6.4 million barrels a day. The U.S. could become the world's largest oil producer by 2020, according to an International Energy Agency release last week. The "World Energy Outlook" expects U.S. oil production to surge 37% from 8.1 million barrels a day in 2011 to 11.1 million barrels a day in 2020.
The most recent reports from the U.S. Energy Information Administration shows U.S. stockpiles of 376 million barrels (for the week ended Nov. 9), up 11.6% from the year-ago period. Prices on average have fallen 13% in the past 12 months. Meanwhile, refineries are producing about the same amount of fuel as last year.
The normalized world demand-to-supply ratio edged down to 0.996 during October. That's the lowest reading since September 2009, when internationally traded Brent crude oil traded at $68 a barrel.
"But for the latest conflict in the Middle East, oil prices would probably be heading lower now," Yardeni wrote.
Follow Trang Ho on Twitter @TrangHoETFs .