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Crude Oil: $84 a Barrel This Week and Could Hit $100 By January, 2011
By Dian L. Chu, Economic Forecasts & Opinions
Last week the shorts were all lined up for another bearish inventory report for Petroleum products from the EIA, but lo and behold, miracles do actually occur. We had an extremely bullish report (Fig. 1) which caught a lot of traders poorly positioned, and many fund managers underexposed to the commodity, which relative to Gold, Silver, and Copper, smelled like a bargain in the face of further quantitative easing expected by the Federal Reserve in the 4 th quarter.
The technicals indicate that upward resistance will not be found until the $84 a barrel level, so despite Crude Oil moving from roughly $75.60 before the report on Wednesday morning to close Friday`s electronic session at $81.73, a $6.13 move in 3 days, there is still more room to go for this upward move in the commodity. (Fig. 2)
The real surprise in the report was the large drop--3.5 million barrels-- in gasoline inventories, and the RBOB contract needed to re-price itself given this change which was largely due to lower imports on the supply side, as demand for gasoline is still relatively anemic year on year.
Distillate demand has recovered strongly over the last 6 weeks from the lows of the summer (Fig. 3), and is quite robust year on year, and a great sign that the double dip scenario is officially off the table. Remember, that distillate demand represents usage from the industrial and manufacturing sectors of the economy which will be the first indications of potential economic strength or weakness.
Expect crude to test the $84 level sometime Monday or Tuesday, and hold below that level before the upcoming inventory report on Wednesday morning. Even if we have another relatively bullish inventory report expect crude to have some solid resistance near $85 a barrel for the week, as the move would be a little overdone in such a short timeframe. It is natural to expect several pullbacks on volatility and profit taking during the week with a potential weekly trading range from $80.50 to $85.70 give or take 30 cents in either direction.
But the longer term trend is clear as traders and fund managers want to be strategically exposed to Oil from this point forward, as the real upward move is just now starting, expect crude oil to hit $100 a barrel by January, and only going higher from there. The signs are there for this scenario, a strengthening euro, weakening dollar, global currency devaluation races fueling all commodities, Oil Moratorium and anti-drilling sentiment from Washington, globally escalating energy needs, global QE2 programs, and natural Inflation Trends.
All one has to do for validation of this thesis is look at Silver at $22 an ounce, and realize that the only thing holding Crude Oil from a $100 a barrel was supply overhangs. It appears that those will be quickly worked off as both the US and global economy are now past the double dip scares. Expect future business confidence and spending to pick up, and with some pro business initiatives around the corner after the elections in November, expect unemployment to start dropping in a meaningful way.
All this portends for not only a monetary-inflation argument for owning Oil, but the fundamentals are now starting to turn, as illustrated by the Distillate demand recovery (Fig. 3), expect gasoline and crude to follow suit, and now you have the makings of a runaway bull market in this explosive commodity.
Moreover, the one element that has been absent from Crude Oil is the lack of a definable trend like the Gold Market. Well, expect that to change. From now through 2011`s Summer Driving Season, crude oil should establish a clear upward trend, which attracts further investment capital, ultimately reinforcing the momentum of the move. This is one of the ironies of financial markets, the higher an asset climbs in price, the more attractive it becomes to investors.
So Crude Oil will become the poster child for the success of the anti-deflationary campaign of the Federal Reserve, but we can all look forward to the Political Blame Game over $150 a barrel oil, Congressional hearings on Oil speculation, National Debates on Energy Policy, and attractively discounted Hummers for sale on CARMAX lots.
Dian L. Chu, Oct. 3, 2010
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soon we'll be selling wheat by the gram....
Chart: CL
$100?
http://99ercharts.blogspot.com/2010/10/crude-oil.html
Positioning I would say is still favourable for further upside its not at an extreme:
http://www.bloomberg.com/apps/quote?ticker=.CLLRG:IND
This weak we have NFP and key China data next Monday, we should see more dollar weakness/"risk on" into those events, unless we get some nasty news surprise.
real stuff- bitchez!!!! no paper crap .
Worldwide storage ? Is it imported then to U.S. , what then has the value of a debasing dollar do to oil .? Up of course . Is the World in a currency devaluation race ? Yes ! What does that do to price of all "real" commodities ? Up of course . Article was nice , but ignores the obvious elephant in the room . And the argument that all " the kings men" will fall , just as they always have in concert is flawed . Because ? This time it is different . There is more safety in real things than a debased fiat currency of any country . Why is this ignored ?
So here is the bearish omen. Please correct me - but isn't north of $80 a barrel considered topping-out for the indexes? The drag that energy prices can exert on the multitude of business at that level certainly would be felt.
Yep look at UK petrol prices -
http://www.whatgas.com/unleaded-graph.aspx
This is far worse than 2008 because we are sustaining the highs. The consumer is being drained right before "austerity" begins. The double dip has to already be there...the data just needs to catch up.
for the benefit of US dwellers this is about $8.50 a gallon at current rates
Ah, right. I recall the trucker strikes when gasoline surged north of a pound per liter. I'm going to keep an eye on this development.
Worldwide, we are close to an all time high in oil storage. Looking at US storage only is a waste of time.
http://omrpublic.iea.org/
"July OECD industry stocks rose by 19.0 mb to 2 785 mb, or 61.4 days of forward demand cover, approaching the record level of August 1998. Preliminary data point to a fifth consecutive monthly build, of 8.7 mb, in August, while oil held in floating storage fell"
The August numbers come out in 10 days (or September numbers, if anyone here is a subscriber).
Our Oil analyst pointed out to me that off shore storage has seen a decrease from 140 mb to 30 mb this year.
Nice post........so, if all stocks are approaching record mlevels, which implies falling demand not only in the US, then what is driving the price of Tapis?
Maybe the fact that it's denominated in dollars?
What's the value of a dollar?
dollar value= poo, technically speaking
On the finviz.com chart of the futures you can see the large traders have ramped up their positions over the past 3 weeks. Price typically follows their allocation level.
Updated GOLD monthly chart:
http://stockmarket618.wordpress.com
Cool, what country is this in? Sounds like it might be a nice place to visit.
Load your space ship with a fresh supply of unobtainium, turn left at Alpha Centauri, go 50 light-years -- 2nd planet on the left.
Price chasers got mauled the last two times it spiked like this. Ring the cash register into strength, buy on weakness, and you will profit with the banksters. Chase price with leverage and you will suffer stress related illness in your elder years.
Every dollar oil goes up just bring us closer to another crash like 2007, 2008, 2009. It'll broach 85, then collapse 6 percent and take the rest of commodities with it. Just like the last three times.
If it hits 100 with the current output versus the contracts on it in the ETF market, that will be the last time we see the stock market again for the next fifty years.
The world runs on cheap oil; food, transport, energy, heat. This should be very interesting to see how governments of the world can contain an automatic 20% increase in capital goods on everything, then justify taxing it on top of everything else.
DId anyone else notice anything at the super market this week? Ground beef doubled in price for some reason, at least in Canada. Medium ground chuck is 5.50 a pound CAN and Extra lean is 7.20 a pound now. Versus two weeks ago, 2.20 for medium and 2.95 for extra lean.
Another thing that struck me is the super market shelves are half empty. Thought it might have been just one place that went apeshit with the price gun, but two stores later and all of them had prices in the same range and their shelves were in the same shape.
"The world runs on cheap oil; food, transport, energy, heat. This should be very interesting to see how governments of the world can contain an automatic 20% increase in capital goods on everything, then justify taxing it on top of everything else."
The *developed* world runs on cheap oil. The U.S. and Europe built their postwar economies on $10 oil. China, India, and the rest of the emerging economies have been built around expensive oil and have geared their production processes and transportation systems accordingly. That's one reason IMO they can weather higher oil prices better than the so-called First World can.
As for Chu's dismissal of a double dip, well, we all have our fantasies.
which city are you in
What an outstanding report on the oil market. There was clear analysis and no wishy-washy calls of maybe this and maybe that... Blowing past $100 people. Get ready. (Well, we'll see, anyway...) :D
Excellent work!
Thanks, ZeroGedge, again, for being able to find winners for content. Awesome job.
i don't know if you're being sarcastic or serious? if former, then you'd agree that there's nothing "analytical" about this analysis when someone is starting her argument with: "lo and behold, miracles do actually occur". Also, if the premise of "the higher an asset climbs in price, the more attractive it becomes to investors" were true then, according to the same logic, the price should've been in low 60's by now based on the last two months of downtrend, e.g. the lower the price goes the more selling pressure it gets, and yet....
I think that oil as opposed to many other commodities, especially hard commodities, has too much political stigma attached to it. at some point it starts to negatively affect the political ratings, as people start to get pissed at the pumps. they don't care as much about the prices of Palladium, or gold, or steel, or even cotton, but oil and food are a different story. i'm sure that Ben has received a directive from the admin at some point stating that whatever you do make sure that we don't make the sheeple too mad too soon....jmo
Of course, I was being serious. But if you notice, I added my own parenthetical, "Well, we'll see, anyway."
It is just my way of saying thanks for having a learned opinion and putting your head on the line by saying X, Y and Z are probably going to happen. It is all charting, anyway and not politics, so I admire anyone with real charting skills.
I do so tire of these analysts basically giving me a run-down of all possible scenarios which, while certainly interesting, is a confusing waste of time. If you have an opinion, tell me why. I would love to learn your methods!
:D
Miracle of the FED redefining the word, 'pump'.
What purpose does that serve?.......is it, or is it not a false price?........the $100/barrel, or whatever.
Actually my technicals picked $80.50 as possible point of retrace, however no matter as when the FED trumps then all technicals blow.
Bet is the FED has a few technical analysts on the payroll all ready to counter........mind fuk tactics deployed with intent.
That is only my opinion and who gives a shit about what I think.
You're right on the money, actually. Frustrating as hell, isn't it, that our superhuman charting skills get stepped on by these guys? They can't keep it up forever, Ro.
http://www.youtube.com/watch?v=7SuSsvJUqKI