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Oil Slick

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The CBOE Oil Index (OIX.X) has jumped 11 points in the past two days, after some key reports were released. On Tuesday, the American Petroleum Institute released their report that showed gasoline inventories have fallen by 4.3 million barrels. This puts gasoline reserves at there lowest level since November. The drop in reserves was somewhat offset by an increase in OPEC production in March. OPEC output rose by 420,000 barrels per day, mostly due to Iraq. With the busy summer driving season approaching, the oil sector could be worth watching.

CBOE Oil Index and Light Sweet Crude Futures Chart

The Oil Index has broken through the 50% bracket and 50-day moving average. The next level to monitor is the 314 level. Comparing the Oil Index chart to a crude oil futures chart shows a loose relationship. Prices generally move together, but there are times when they diverge. The past two months are a perfect example. Crude futures have been in a clear downtrend, while the Oil Index has been up and down the past two months. Watching the futures should give us a signal as to which way stocks are going to go. If crude futures can break the downtrend they are in, oil stocks should see a boost. Crude futures have been declining on fears of a slowing economy reducing the demand for oil. On the other hand, warmer weather and summer driving could increase demand. Watching futures, the index, and individual stocks for any divergence could give us some early trading signals.

Jeff Canavan
Assistant Analyst

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