Although the recent tensions in the Middle East and Libya have been cited as reasons for the surge in oil prices, from a technical perspective I have been long the commodity for many months – in fact I was fully expecting oil to breach $100 per barrel in Q1 – & you can read my most up to date crude oil analysis on my personal blog.
Higher oil prices threaten global economy
WTI Oil Chart 5 Jan 2011
Daily oil prices have today rebound back above the $90 per barrel price handle following better than expected crude oil inventories which confirmed a draw of -4.2m barrels against a forecast of -1.4m barrels. This data also followed much better than expected employment data in the US suggesting that the US may now be seeing the start of a much firmer economic recovery. Two further factors which will also impact commodity prices include Iran and Kuwait’s determination to maintain OPEC production targets and the emergence of La Nina weather phenomenon, confirmed earlier today by the Australian Bureau of Meteorology. According to the FT it seems the “strength of the present event is inspiring comparisons with 1973-1976, when several years of La Nina conditions triggered severe droughts and pushed the world into the most extreme food crisis since the second world war”. It’s effect on oil production will be seen in disruptions to offshore drilling and production.
From a technical perspective crude oil prices look set to re-test the psychological $100 per barrel price handle which given the stance taken by OPEC and possible weather conditions may be sooner than anticipated.
Kuwait & Iran stand firm on oil production
Oil Chart 17 Dec 2010
Following two weeks of sideways consolidation with today’s candle on the oil chart adding to the recent pattern, the only question that remains is whether the explosive break out for oil prices to the upside occurs before the end of the year or in 2011 – but make no mistake crude oil prices are heading higher – and the more prices consolidate the bigger the move. In the short to medium term the current consolidation may be sufficient to propel crude oil through the $100 per barrel price handle, but only time will tell. From a technical perspective all four moving averages are pointing sharply higher with both the 9 and 14 day providing strong support in the event of any minor pullbacks and over the last three days we have seen a series of higher lows to the downside, always a strong signal that a breakout is imminent. The 40 day moving average is also now moving firmly higher and with the 200 day also inclining upwards this is also giving us a further confirmatory signal of the bullish mood for oil. Immediately below we have several strong platforms of support, not least in the $84 per barrel region along with a secondary level in the $87 per barrel area. From a fundamental perspective the prolonged cold weather which is now affecting much of the northern hemisphere is helping to fuel higher energy prices along with this week’s oil inventory stats which surprised the market coming in with a large draw of -9.9m barrels, against a forecast of -2.7m barrels. Sadly I cannot confirm when the $100 per barrel price point is likely to be achieved, but rest assured it will get there, and from there in the longer term I fully expect to see a re-test of the all the time high of $147.27.
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Oil Prices (WTI) 1 Dec 2010
A volatile week for crude oil trading so far with Monday’s strong breakout promptly reversing yesterday as crude oil prices pulled back as a wide spread down candle which found solid support from the 14 day moving average. Indeed this volatile price action has continued once again in today’s crude oil trading session with the commodity bouncing back on the strength of better news for the euro. Despite this short term volatility the longer term picture for oil remains firmly bullish and indeed the 9 day moving average is now crossing above both the 14 and 40 day adding further weight to this analysis and given today’s bullish momentum we should expect to see this carry through for the remainder of the week and a run towards the $80 per barrel price point will not be unexpected. The key platform of support has now been created at $84 per barrel and this should provide a solid springboard for this longer term rally.
Oil Chart (WTI) 29 Nov 2010
Crude oil prices bounced back in style last week with Wednesday’s wide spread up candle injecting some much needed optimism which was duly consolidated on Friday with a hold above all 4 moving averages once again. Indeed a feature of Friday’s candle was the deep shadow to the lower body which tested support at the 9 day moving average suggesting that bullish intent remained firm and moreover this has converted into strong gains for the commodity in the oil trading session today with crude oil trading at time of writing over $1.63 per barrel higher, at $85.63. The key point to note from a technical perspective is that we are now once again trading above all four moving average and provided this continues to remain the pattern, then expect to see crude oil retest the high of 3 weeks ago at $88.62 per barrel. The 200 day moving average continues to slope higher suggesting that the longer term outlook for oil remains bullish and indeed our medium term target for the commodity continues to be $100 per barrel.
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(c) Financial Times Limited – 2010