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Why Oil's Rally Is Over
Submitted by Martin Tillier via OilPrice.com,
A lot of people have got very excited as the price of WTI has bounced back from the lows reached a few months ago. If oil fails to break and hold above $62 this time around, however, their enthusiasm could well be misplaced, as the fundamental factors that caused the price decline in the first instance are still in place.
That, combined with the technical importance of this challenge of the resistance, makes a drop back below $50 look more likely than a continued rally. When short-term technical indicators and long-term fundamentals both suggest a move in the same direction, as is the case here, investors are well advised to pay attention.
In the short term, as the above 3 month chart clearly shows, the $62 resistance level that we are approaching again has enormous significance. Most traders will tell you that the third attempt at a support or resistance level is the most important, and the reason for that is also clear on the chart.
The first time WTI tested $62 it dropped back to around $60 when momentum reversed. Then, a few weeks later, failure to break through led to a more pronounced retreat, back down to around $58. Each failure to break above a resistance point usually results in a bigger correction back the other way, so failure on the third try would likely be followed by a drop to $55-56, making another attempt far less manageable. From there the combative nature of traders would make a re-test of the January lows more likely.
The real problem, of course, is the same one that is always faced by technical analysis…price doesn’t exist in a vacuum. There are real world fundamental factors that are far more influential. With oil, those fundamentals also suggest another drop is coming.
Part of the reason for the rally was just that the initial move was so fast and furious that a correction was inevitable. That came in large part at the beginning of the year, when the dollar stopped its seemingly inexorable rise and began to retreat.
Oil is priced in dollars, so, all else being equal, if the dollar is worth less then, on a relative basis, oil is worth more and the price goes up. Just as with the commodity, however, the reversal in the currency markets looks more like a temporary correction than a true change of direction when the fundamental factors that caused the initial move are considered.
Two of the U.S.’s major trading partners, the Euro zone and Japan are still pursuing QE of sorts, long after the Fed has wound down the policy here. Whatever you call this type of policy, it is basically liquidity creation also known as printing money. Anybody who has taken economics 101 can tell you that increasing the supply of something will decrease its value relative to other things. Relative dollar strength, therefore is a result of the most basic of fundamentals, supply and demand.
Oil has its own supply and demand issues too. The increased domestic supply of oil as fracking wells really came online, along with fears of slowing global growth and falling demand for fossil fuels, were major factors in oil’s collapse. Nothing much has changed there either. On the demand side there has been no global meltdown but China is still weaker than expected and recent U.S. GDP numbers have been disappointing. The developed world continues to become more energy efficient.
Even the good news on the supply side looks a little suspect. The recent move up was sparked by lower U.S. oil production numbers, but analysis suggests that it was a temporary slowdown in Alaska, not a reduction in fracking production, that caused the rise. Inventories still remain elevated and Saudi exports were the highest since 2005.
In short then, it looks like the things that caused the dramatic fall in WTI, oversupply, a risk of falling demand and a strong dollar are still with us. This test of $62 looks doomed to failure and a return to below $50 seems almost inevitable
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It matters to me not.
The pump prices will still maintain at record high prices...and beyond.
Simply stop driving.
Nope... That chart says one moar spike up at that's it.
Cause there's an extended third wave in there and it's in the more major fourth wave down now
Then again.. Looks like the fifth wave up has started already.
So next week is the top unless the fifth wave up is extended as well
Then it would take longer to top out
This is the first holiday weekend of the Summer and we'll get to find out how Joe and Jane Average feel about yet another"Recovery Summer"....
hey i did my part; recycled metal and spent fifty dollars on gas and nettted 70 for 2400 lbs of scrap. good days work plus a workout. land is junk free, the motive...
But you didn't drive anyplace useless like you are supposed to....
I'm not a huge fan of EW, but in this case Harmonics suggest the same outcome. Looking for 68.42 in CL -- possibly as soon as next week.
http://pebblewriter.com/markets/oil/
Fight Global Terror (and Warming): Ride a Bike...or continue paying handsomely for the privelege to be attacked and kill yourselves off, no skin off my nose.
Too many lazy fucks drive half a mile to load up on cookies and 500 calorie cups of coffee, then sit in traffic wondering why they're fat.
okie dokie, do i have oil price scum correct? their long positions are getting long in the tooth and now have shifted their bets to the down side in price. am i reading these thieves correctly? they are not even trying to hide it anymore. for months they wrote endlessly about how the price of oil should be $70 or $80 and now we have maybe 4/5 articles supporting a much lower price? I hope the tylers are charging these clowns per word to post this shit.........
I work from home 2-3 days a week now. It used to be once a week.
I'm so excited and I just can't hide it. I love paying more for gas!
Explains the puddle you left on the floor over there.
Now if gas prices will follow suit, I'll be a happy camper. Somehow I doubt that will be the case.
Not this weekend.
I've seen some shifty station operators (ethnicity withheld) charing up to a $0.50/gallon differential between regular and premium when the difference used to be $0.20/gallon.
They blame the refiners. I blame Apu.
Note to self. Keep V8 RPM's below 2500 until this madness subsides.
Apu is becoming a true American then....
1900 rpm gives me 17-19 mpg for 2000 4.8 L chev 1500. i'm happy. 5000 miles per year...
The Utica shale deposit sits directly below the Marcellus shale deposit.
"Just drill deeper."
We already have all electric everything and the grid to power it all.
Gasoline to ten cents a gallon...
Never confuse natural gas with oil but especially gasoline...they have nothing to do with each other (unless you like to navel gaze and focus on micro-percentages).
Unless they start making more NG powered cars, which would cut into gasoline use
All those alternative energy schemes require high oil prices to survive and be viable. It's not just shale that's gonna go pop. It's pretty much the entire "green energy" sector that the US has poured billions into to try and force into existance.
Tesla to power new satellite with 454 Chevy Big Block! GM Stock soars on news!p>
Does that hurt the US...or Germany and China?
China doesn't give a shit cus in the end the government gets what it wants. Germany already has infrastructure in place.
Don't let facts get into the way of opinion. In Philly, 100% green energy is about 10 cents a kilowatt. I drive an electric car and get my electricity from a green supplier. Gasoline would have to be at or less than 50cents a gallon before it is on par with electricity prices.
https://www.chooseenergy.com/compare/19149/electricity-rates/#?filters=%...
Small waves ride inside bigger waves, which ride inside super waves.. The market will *never* travel in a straight line and *always* resist itself and *always* go to a level that you think will not happen. Some tips : Moon cycles, Shemitah Cycles, Jubilee Cycles...
We are no more advanced than a wild animal scratching it's ass before heads off on it's migratory route..
The secret to the revoltion is to de-commoditize yourself and make your existence very comfortable without their fiat debt and money.
And moonshine!
Good advice. So many people complaining about what they let banksters do to them.
As if Goldman's crap price predictions were not enough....
Kushing reaches capacity in June - or so said past commentaries.
Would be useful to have an update.
U.S. dollar going higher against basket of other currencies. UUP bottomed-out short-term around 24.5 a few days ago (spot = 25.25) and oil has been struggling to move higher since ... if UUP starts marching back up-towards 26.00 & punches thru, oil gonna get flat-out donkey-punched.
across the wire earlier this week
iraq plans to increase crude production from 3.1 million barrels a day to 3.5 million barrels a day by year's end
Zero Hedge seems to have a heavy bias to talk down the price of crude. Let's consider that the driving season is about to start and the Middle east is on fire. Also if a person can look long term (like past next week) it seems to me that a base is being built for a very strong crude price, driven by a weak dollar and the fact that emerging markets are using more crude than developed markets for the first time in history. We don't really know what the new decline curve will look like with "Super Straws" juicing crude production all around the world. China and India's infrastructure plans, I could go on. Crude has rallied from $42 to $60 while ZeroHedge has ran about 50 negitive oil articles so we'll see.
2.79 a gallon, freaking greedy fucks.
Wait until they have you paying that for water.
I found it interesting that Reuters reported recently that KSA would not fill a request for more oil from China. Neither would other gulf countries... http://www.reuters.com/article/2015/05/20/saudi-china-oil-idUSL5N0Y918W2...
Their surging production by > 10,000 bbl/day, but holding back on deliveries...basically playing games and following the US lead so they don't get left to deal with ISIS alone.
Sounds like another "$48 handle" call... cuz that was all based on the fun"durr"mentals as well.
This is going to be a long and arduous ride back up to $75 with all "this is the top, nope, sorry, this is the top, nope, sorry, this is the top" articles.
Long term the price of oil is going down, its called depletion. Depletion reduces, including the price. Short term - who knows. The market is run by a bunch of hairy ass chimpanzees with a computer!
Martin Tillier arrives at the same conclusion I did by different means. The XOI.X index is a pretty good proxy for the energy industry, and it does follow a set of commodity cycles having to do with lag times betwen price, exploration, production and oversupply. While this cycle model predictive curve looks outrageous, it also looked outrageous a year ago when it predicted a steep fall in oil price months in advance.
Repeat call Cornerstone Analytics and see how wrong you are on demand where it has increased by a whopping 4MB in April....EIA & IEA continue to underestimate demand and over on supply and yet uou Tyler cause of your "positioning" refuse" to even investigate the point of view.....Im truly shocked by the depth of research here and lack of objectivity. Im only trying to help as I do love the site but u are way off base on oil.
this is an oilprice.com piece, you've been warned at the top coming in