Did Oil Just Bottom? (OIH, VLO, BHI)

The rise in the dollar and the most recent wave of added risks that are coming from Europe combined with the loan halts in China have brought havoc to the commodities markets.  Oil has not been immune.  But this brings up an interesting issue here with oil today.   Oil just hit $78 on Wednesday, yet late this morning we saw oil crack under $70.00 per barrel.  At 12:23, NYMEX WTI Crude is down by -$2.35 at $70.79 per barrel.

Is it fair to just say that a trading range exists around even numbers in $5 or $10 increments?  No way.  But in the middle of January, oil was over $84.00 per barrel for a brief period.  That put is above the 50-day moving average, and that has acted as resistance since.  Oil had traded briefly under $73.00 in December, traded above $80 for much of mid-October through early December.  So traders had decided that a fair range for price moves would be $70 to $85….

Then there are the oil services operations to consider.  The key ETF here is the Oil Services HOLDRs (NYSE: OIH) is down over 2% at $114.20.  The 200-day moving average for this one is at $110.96.  You have seen dismal earnings issued from the likes of Valero Energy (NYSE: VLO) and every other major oil company over their refinery operations.  Baker Hughes Incorporated (NYSE:BHI) just announced today that the international rig count for January 2010 was 1,047, up 23 from the 1,024 counted in December 2009, and up 3 from the 1,044 counted in January 2009. The international offshore rig count for January 2010 was 288, up 7 from the 281 counted in December 2009 and up 9 from the 288 counted in January 2009.

Today’s price action after the last two days just took out the lows of late-December and the lows of early December.  It will be interesting to see if the $68 per barrel mark gets taken out that we saw in September.

With oil hovering right at $70, it seems likely that two new scenarios will become the bet.  The bets may start here in one camp that black gold is grossly oversold and has reached the bottom of the expected trading range.  The second camp is one that will say oil has a new trading range, and a lower trading range at that.  This recent trading also challenges the T. Boone Pickens call for $90 oil.

The lowest near-dollar levels to watch will be $68, and if that gets take out then $65 will be the key level to watch.  We have seen the news from companies.  We have seen the news from the macroeconomic front.   Now it seems up to the traders.

JON C. OGG