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 Tuesday 07 November 2017

Crude in demand - PM Bulletin

 

 

Crude oil prices have been on a tear since the summer, and last week WTI finally broke above a significant area of resistance.

The question now is whether this is just the start of a bigger move, or if prices are overcooked.

The first chart shows how WTI sold off from over $100 per barrel in the summer of 2014 to hitting a multi-year low below $28 in January 2016. Since then the contract has gradually pushed higher until it finally broke above $54.00/54.50 last week. This area marked an area of resistance which had held and built through the first few months of this year, so a break above here is certainly significant. This can be seen in more detail in the second chart. This shows how WTI has rallied since June this year and how the buying accelerated once resistance finally broke. There are now a number of analysts out there saying that the rally is just starting now. That certainly looks like a reasonable assumption if one looks at the longer-term chart. After all, prices have hardly rip-roared since the lows hit in 2014. Chart-wise it looks a lot more like a consolidation pattern as bulls and bears battle for supremacy. Last week’s break of resistance suggests a large degree of short-covering took place leaving the oil market ripe for further gains.

Of course, just because buying momentum has picked up doesn’t mean that the oil market is a one-way bet. Crude is a notorious battleground for speculators and prices can turn on a sixpence particularly when open interest becomes overweighed either to the long or short side. My guess is that we’ll need to see WTI consolidate somewhat before it is in a position to push on and test $60. While there are positive fundamentals out there (including growing tensions between Saudi Arabia and Iran, Saudi’s anti-corruption push, falling global inventories and a decline in US shale production) it does look as if crude has rallied too far too fast. This is particularly the case as much of the move since the summer has been on the back of the OPEC/non-OPEC production cut agreement. More recently, there has been considerable speculation that this output cut will be extended in duration, and possibly size as well, at this month’s OPEC meeting. But much of this expectation is already priced in so there’s scope for disappointment.

Charts courtesy of Investing.com:

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Posted by David Morrison

Tagged: Oil crudeoil Commodities Bullmarket

Category: PM Bulletin


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