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 24 Jan 2011
Today’s weaker dollar and positive equity markets have done little for the WTI contract which at time of writing is trading at $87.80 per barrel, having fallen from a high of almost $90 per barrel. Crude oil remains soft on fears that China, which the world’s second largest consumer of energy, is likely to raise interest rates in an effort to clamp down on inflation thereby slowing economic growth and demand for energy.
In addition last week’s inventory report gave oil traders a further excuse for offloading oil contracts as the weekly stockpile figures for Cushing showed an increase of +2.62m barrels bringing the total to +335.7m. The forecast had been for a further draw. Gas supplies, distillates and heat oil also all rose and with OPEC believing oil supplies to be “in balance” given the probable slowdown in demand and plenty of capacity crude oil prices will be looking for a move back to around $85 per barrel in the short term.
WTI & Brent Spread At Widest Since Feb 2009
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 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