The market sentiment in the oil complex has clearly been one of sell the rallies which is a big change from the last three months or so when the sentiment was buy the dips. The combination of less players in the oil space due to high margin requirements and just a lot of participants who have been dinged a bit after the last several weeks has resulted in oil trading in a wide trading range of $94.50/bbl on the low side to about $104/bbl on the high side as shown in the following chart of the spot Nymex WTI contract. Within the trading range the market has a downside bias that goes back to the end of July peak of almost $114/bbl. From a technical perspective the market certainly looks weak and in a sell the rally mode with another test of the key $94.50/bbl technical support level likely in the short term. If this level is solidly breached there is not much to stop the price from moving back into the $80's and thus eliminating the vast majority of the risk or fear premium that has been in the market for months. Obviously a major driver that could easily push prices back into the $80's is a diplomatic resolution in Libya as most other areas with oil at risk in the MENA region have not gotten any worse over the last week or so. That said the strong arm in Syria continues on the protestors and protests around Israel have been flaring up since the weekend. However, it does not look like there is any other oil supply that is in jeopardy at the moment thus a resolution in Libya would simply result in additional oil hitting the market in the medium term and thus bolstering the growing view that oil is very oversupplied. While a diplomatic solution is always a possibility the fighting rages on and NATO continues to bomb Gaddafi strongholds. This morning they bombed several more building in the Gaddafi compound including the interior ministry. The latest strikes on Gaddafi's stronghold came just hours after the International Criminal Court's chief prosecutor sought arrest warrants for the Libyan leader, his son and the country's intelligence chief for authorizing the killing of civilians in a crackdown on antigovernment rebels. So for now oil sits in the ground in Libya and a diplomatic solution is still elusive.
On another potential supply issue is the evolving floods in and around the Mississippi River. Over the weekend the US Coast Guard opened the floodgates to reduce the potential for flooding in Baton Rouge and New Orleans but it is causing floods in the so called Cajun country that is home to about 20,000 bpd of crude oil production and about 250 MCF of Nat Gas. In addition several refineries are in the path including Alon's facility at Krotz Springs. There are also logistics problems emerging as the Coast Guard says it might have to halt shipping on the Mississippi River. However that all said the exposure to a large number of refineries has dissipated a bit over the last several days now that the spillway has been opened. But this is still an issue to watch closely over the next few days and be aware that it could be a catalyst for sudden up and down moves in prices based on the 30 second news snippets that will hit the media airwaves.