Thursday, October 16, 2014

WTIC West Texas Intermediate Crude Oil Weekly Chart

Oil is bludgeoned off the top at 108 dropping to 80, a loss of 28 bucks, -26%, clearly in bear market territory (a loss of over -20%) in less than four months. That is quite a beating. Oil is losing about -7% per month and about - 1-1/2% per week. Price has violated the lower pink band so a move back up to the middle band, at 96.93 and dropping, is on the table. The bands squeezed out a move (pink arrows) in late June and that move was drastically lower.

The red rising wedge pattern printed this year with negative divergence in the indicators signaling the top in June-July. Note that price did not overtake the 2013 highs which shows very little interest in the higher prices. Price collapsed straight down; the move is remarkable considering the Middle East and northern Africa turmoil, however, the world's economy is slowing and oil demand, especially in China, is decreasing. The big drop signals a global deflationary environment ahead. The oil supply is robust there is nowhere to put the stuff. Keystone is filling up old milk jugs and empty soda bottles and jars since they are giving oil away on street corners these days. Higher supply and lower demand says lower prices as every Econ 1 student learns. Everyone in the States are joyous seeing the relief at the gasoline pump with some stations now offering unleaded regular gasoline under $3.

The Saudi's are cranking oil production full tilt to break the back of the Canadian oil sands and US oil shale industries. These North American oil producers need an oil price above 75-85 to make money and justify operating. The oil shale stocks are beaten relentlessly since some companies are levered up with debt and suddenly that world is beginning to crumble around them since the oil sales cannot cover their obligations. The Saudi's would love to send the oil sands and oil shale projects into turmoil so they could then back off on production and go back to being the main producer with little competition. Long oil traders that figured the Middle East turmoil guarantees higher oil prices had their heads handed to them since no one expected the Saudi's to ramp up production. Previously, the Saudi's would decrease production to help keep prices buoyant; this time around they are gunning for the North American producers.

Also, placing the conspiracy hat firmly in place, perhaps the move by the Saudi's is in concert with the US behind the scenes since huge pressure is exerted on Russia that depends on oil and gas for 80% of their economy. To further the conspiracy talk, the US and Saudi's may be colluding to drive price lower to hurt the ISIS radicals that are funding their terrorism operation in Syria and Iraq with oil sales on the black market. If the US government, however, is complicit in driving the oil price lower, they are doing it at the expense of the US oil shale plays and Canadian oil sands projects.

The stochatics, histogram and money flow are positively diverged over the last several months agreeable to a recovery here on out, however, the RSI just slipped into oversold territory and is weak and bleak, ditto the MACD line and histogram in the shorter term. Therefore, a bounce is on tap but followed by more weakness. A bottom should form say over the next one to four months since the indicators need time to positively diverge. The RSI would need three weeks to produce possie d if it chooses. Keystone's 80-20 rule says 8's lead to 2's and 2's lead to 8's so the breach of 82 on the way down places 78 on the table. Price can move down to 77-78 to finish the green falling wedge pattern. So a bounce is desperately needed which will probably be the dead-cat variety, then back down to finish basing during November, then recover. Oil may then move sidways through 76-85 into 2015. This information is for educational and entertainment purposes only. Do not invest based on anything you read or view here. Consult your financial advisor before making any investment decision.

Note Added 6:38 AM: WTIC crude oil is 80.49 down -1.6% this morning. Brent oil is at 83.06 for a WTIC-Brent spread of only 2-1/2 bucks.

Note Added 12:37 PM: Oil collapses this morning and at 7:12 AM dropped under 80 for the first time since June 2012. WTIC since recovers now a smidge above 82.

No comments:

Post a Comment

Note: Only a member of this blog may post a comment.