Crude Oil at Resistance, OVX Higher High, Dollar/Oil Narrowing in Lockstep, Oil Futures In Contango ($WTIC, $OVX, $USD, USO) Will There Be Blood?

Crude oil looks ripe here for a catalyst.  It's been trading in a sideways channel since September of 2009 (7 months).  The Oil Volatility index ($OVX) is making a higher high which is interesting because crude is testing upside resistance again.  OVX measures volatility on the Oil Fund ETF ($USO) so the relationship is similar, USO and OVX are converging (higher high in USO volatility vs. lower high in USO itself).  So why is oil implied volatility not testing the lows, like the VIX, as the underlying (Oil or USO ETF) tests upside resistance?

If a positive oil catalyst presents itself (cut in inventories, Asia/China demand, Middle East battles, inflation, dollar dump?) and Skynet Terminator trading bots rush oil over resistance it could head to $90-$100 (9/09-3/09 ceiling resistance respectively).  Oil is at $81.72.  Oil has also been moving in lockstep with the US Dollar recently which is hard to figure out.  The Euro is probably forcing the marriage at the moment but something has to give.  On the other side of the trade, as with the S&P, if there's a double dip recession, China tightens too hard or a deflationary safe haven bid knocks out risk/commodities, demand for oil could see a double dip and price would sense it with a $70 breakdown.  A stagflation scenario would be interesting.  Looking out on the oil futures curve I see that it's in contango.  A year out oil is trading at a 4.5% premium, just think a year ago January crude oil was trading at a 30% premium to February 2010!

$WTIC (Light Crude Oil - Continuous Contract) 

Crude Contract vs. Crude Oil Volatility Index vs. US Dollar

USO vs. OVX
[Charts courtesy of StockCharts.com]

NYMEX Oil Futures Curve (INO.com)
April 2010 = 81.87
May 2010 = 82.31
June 2010 = 82.78
July 2010 = 83.25
August 2010 = 83.63
September 2010 = 83.96
October 2010 = 84.25
November 2010 = 84.54
December 2010 = 84.85
January 2011 = 85.05
February 2011 = 85.25
March 2011 = 85.45
April 2011 = 85.63

Thoughts?


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