Speculation and Short-Covering Spikes Crude Oil, Plenty of Room to Upside

May NYMEX Crude Oil futures are spiking higher on the daily chart during the pre-market session, driven higher by short-covering and some speculative buying on reports that Saudi Arabia bombed Iran-backed rebels in Yemen.

Traders are ignoring the bearish weekly Energy Information Administration’s supply and demand report that showed inventories continued to build during the week-ended March 20. Instead they are focusing on the events in Yemen because they could lead to potential supply disruptions. Right now there are no such reports, but this is a speculative market so we have to deal with the unknown.

Based on reports out of the region this could turn into a long-term event because Saudi Arabia has pledged to do “anything necessary” to deter the Iran-backed Shiite rebels who are taking over neighboring Yemen. So far it doesn’t sound like a “one and done” event so investors should prepare for possibly a few weeks of counter-trend/counter-fundamental trading.

The key factor that could drive the market higher even further will be whether there is retaliation on the Saudi’s and if this leads to a disruption in supply. If this happens then this will surely catch the attention of the hedge and commodity fund traders who will either cover their short positions aggressively, or flip to the long side.

If you want to see the charts and the forecast go to: http://www.fxempire.com/technical/technical-analysis-reports/nymex-crude-oil-cl-futures-technical-analysis-march-26-2015-forecast/