New contract highs in the energy futures markets continue to be set almost every week-with the markets trading higher on any sort of bullish news traders can find. Most recently, the violence in Nigeria caused another Shell facility shutdown, sending crude oil into another violent move higher and bringing reformulated gasoline blendstock for oxygen blending (RBOB) and natural gas along for the ride.

Crude oil had a slight correction in trading in the end of April, and tested near-term support on the first of May-hitting 11030. Since then, the market has rallied more than $12 per barrel and is now trading above $122. Many analysts believe this market cannot be sustained at these levels, but that has also been the thinking since the market traded above $115. It is hard to argue against a trend that really has been in place since August of last year, and has become only more pronounced since February. Looking at the chart, we could see a rally through $130 per barrel near term-and potentially above $140 in the next couple of months of trading. Analysts believe traders are using the oil market as a hedge against inflation, lending support to the inverse relationship between this market and the U.S. Dollar index. The Dollar saw a rally of its own in the end of April, but so far has traded lower in the second week of May. Continued weakness in the Dollar supports what seems to be an already overextended crude oil market. I still believe the market should correct below $110 at some point, but trying to pick a top in this market has proven asinine.

As we inch closer to the beginning of driving season, the RBOB market is following the lead of crude oil-making new contract highs after a slight correction to 28195 on the first of this month. Historically, the gasoline market trades higher in May. And with crude oil continuing higher, it seems this year will not be an exception to the rule. Refinery concerns in both the U.S. and Europe are lending support to this market as well. RBOB trades in close relation to the crude oil market, and unless there is a significant price decline in crude, RBOB will likely continue higher through the summer.

Natural gas is trading higher (just like the other energy markets), but seems to be moving higher at a slower pace than crude or RBOB. The market is not technically overbought like crude and RBOB. The June contract settled above $11 for the second time on Monday, May 5th. We are likely to see a test of contract highs at 11465 this week, and with both the short- and long-term trends pointing higher. But keep in mind that the temperatures in the U.S. are becoming milder, and so demand for natural gas could wane in the coming weeks.

Support/Resistance:

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