That`s the Bottom in the Oil Market

EconMatters's picture




 

By EconMatters
 

 

  
Clear Out Weak Hands in the Market

 

On Wednesday the oil market sold off to $33.77 on large product`s builds, China`s devaluation of its currency, and a substantial selloff in equities. Sure Oil can go a dollar below this low, but for all intents and purposes this is the bottom in the oil selloff that was predicted for the start of the year. This move down was as predictable a move as there is in financial markets, and we called this down move to start the year with a piece we issued in December.

 

  
500k Futures Contracts Traded on Wednesday

 

It took over 500k in futures contracts just to push oil futures below $34 a barrel on Wednesday, and trust me it wasn`t an easy task for those involved in the pushdown. They now are stuck with being far too short the market at a level they don`t even like being stuck short. At a time when US Production is about to drop off a cliff, and the Middle East is a ticking time bomb that is about to blow up any day now. Look for a major short squeeze in the oil market over the next month as the ramifications of $34 oil play out in the market.

 

  
Earning`s Season

 

This entire move in equities and oil was already preplanned at the beginning of the year. Read our the market is a game piece as this was just about cleaning out the weak hands before the start of the earning`s season to make a whole bunch more money for the first quarter. Shoot the Shanghai Composite Index was up over 2% on the devaluation of the currency, yeah they took it really bad! Please this is the same old crap the players played in August, and at the end of the third quarter, and voila the market was suddenly fixed right in October just in time for Earning`s season. It’s all a game, learn how the game is played and the profits will follow my friends!

 

  
Market Call on Record

This is a short piece just to get our market calling for an essential bottom in the oil market in for the record. You may now go long the oil market in your preferred instrument. Just stay away from companies that are going to go bankrupt, but in buying something like the USO oil futures ETF, you will definitely have a positive expected return over the next six months to a year going forward.

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Thu, 01/07/2016 - 21:38 | 7015022 Haole
Haole's picture

That's NOT the bottom in the oil market and a market analyst, or whatever this guy thinks he is, should know better...

Blue collar dummy calls BS.

Thu, 01/07/2016 - 20:09 | 7014576 wafer_roll
wafer_roll's picture

Looks like the Saudis/israekis are trying to start a hot war. That means iran/russia should play it cool and avoid a full on frontal war. Let the Saudis burn through their cash, keep iran developing their ballistic missile systems, and when the time is right, unleash their oil in the global market, pushing oil even further down. Trolol.

Thu, 01/07/2016 - 20:02 | 7014552 Turin Turambar
Turin Turambar's picture

LOL, oil is heading to the $20's.  It may not stay there forever, but there's no way in Hades we're within $1 of the bottom.  SMH

Thu, 01/07/2016 - 19:44 | 7014493 J 457
J 457's picture

I'm thinking WTI brielfly kisses $20 before any meaningful reversal.  Before then rig count needs to decrease, several more suppliers need to BK, and all the experts need to agree that oil is going to $15 and will never ever recover.  Oh, and QE4 will be the catalyst in late 2016 with DOW at 13,000.

Thu, 01/07/2016 - 17:57 | 7013966 ToSoft4Truth
ToSoft4Truth's picture

 

The Black Swan is N. Korea (US?) turning the Kingdom into glass.

 

This would divert attention away from the financial fraud too.

Thu, 01/07/2016 - 15:45 | 7013145 Rainman
Rainman's picture

If you like CXO and XEC in the 90s as shown above, you'll love them even more at an 82 close today ... pass

Thu, 01/07/2016 - 17:03 | 7013640 cheech_wizard
cheech_wizard's picture

^^^ This ^^^

 

Thu, 01/07/2016 - 15:27 | 7013038 Suleyman
Suleyman's picture

Low prices will fix the supply side eventually, but there is a large overhang, because of the long time nature of oil investments. The reason for the apparent imbalance is too low interest rate for too long. In addition, all the largest oil companies are socialistic enterprises, and I include Saudi Aramco in that category. They are not primarily interested in long time profit, rather to accomodate the workers and the dependent industries, and of course to harvest maximum value in the shortest possible time. The saudis have 20000 princes, free everything, and they need to bomb their neighbours to the tune of 55 B USD (2012, rapidly rising).

Based on the above, I think oil can go far below the operating cost price of about 10 USD for the lowest cost producers (saudi, russia). No one knows the bottom, but the current price of 33 is certainly not a floor.

Thu, 01/07/2016 - 14:34 | 7012675 savedeposit
savedeposit's picture

Wake me up when oil is $20

Thu, 01/07/2016 - 15:21 | 7012994 zeroaccountability
zeroaccountability's picture

"Wake me up when oil is $20"

Are you prepared to 'Rip Van Winkle' it for awhile?

Thu, 01/07/2016 - 13:53 | 7012384 luna_man
luna_man's picture

 

But, I'm looking at a couple refiners and the charts are telling me long way to go, before placing my orders!

 

maybe you have other motive

Thu, 01/07/2016 - 21:07 | 7014884 Early Retirement
Early Retirement's picture

Refiners are short crude, not  long crude.

Thu, 01/07/2016 - 13:34 | 7012251 JamaicaJim
JamaicaJim's picture

Agreed Fed-up

I run from market timers.

Calling a bottom or top is folly.

We traders - ones that are successful - don't care. Long. Short.

Last night I was short oil. This morning? Long. made money on the short, and in the money - for now, on the long. Stop moved minutes ago to B/E.

Will it get in the 20's? Not for me to say. I haven't a clue.

Thu, 01/07/2016 - 13:17 | 7012137 Gold Dog
Gold Dog's picture

The cure for low commodity prices is low commodity prices.

Thu, 01/07/2016 - 13:10 | 7012091 KnuckleDragger-X
KnuckleDragger-X's picture

SSDD, yet another voice demanding that the numbers only mean one thing can happen. The whole problem with models, is that they are ONLY models. Real people, living in the real world are trying to survive and aren't going to buying a lot of fuel when they are doing their damnedest not to become homeless.....

Thu, 01/07/2016 - 12:55 | 7011971 Fed-up with bei...
Fed-up with being Sick and Tired's picture

Oil, WTI to be specific is going to 31.89 or lower and possible in the 20's.  I am a pro trader and analyst and these guys are making a big mistake saying this.  MARK MY WORDS!

Thu, 01/07/2016 - 16:52 | 7013575 walküre
walküre's picture

GS is making $20 oil predictions like they made subpar EURUSD predictions and their followers got burned when ex GS Draghi didn't deliver and the EUR rallied in December.

So ... how heavy is the short side on oil right now? Could very well be that oil does a crazy moon shoot when the moonies and GS customers in the ME do something crazy.

Thu, 01/07/2016 - 13:37 | 7012281 Kefeer
Kefeer's picture

Agreed and oil may very well hit $20-$24 before any turning around bar some major oil blockade (a possibility) created by ISIS (Al-CIAda).

 

Did you know that India and Iran now have an agreement to settle oil payments in Rupee's; India, China and Russia working together are formidable.  All it will take is for one major EU member to flip east; like say Britain.

http://indianexpress.com/article/business/business-others/iran-india-to-...

 

The House of Saud is going to fall as early as the end of June and the Chinese could announce a new gold trade settlement; any of these events can put the final nail in the coffin...the guard has already been changed; it is a matter of making it official...we are in great trouble like we have never known.

Thu, 01/07/2016 - 14:10 | 7012501 thesonandheir
thesonandheir's picture

There just isn't the demand for oil anymore, reducing supply bit by bit won't help as it needs increased demand also. Electric cars and climate change laws don't help.

Thu, 01/07/2016 - 14:18 | 7012568 Citxmech
Citxmech's picture

Before trading oil, I'd be very worried about the possibility of it just bouncing around down here for a very long time (a la gold's performance over the past two years).  Oil shouldn't be able to spike until a massive amount of production goes off-line, which should kill any economic activity that is still breathing out there. 

Thu, 01/07/2016 - 16:33 | 7013440 The Saint
The Saint's picture

What's that old saying about catching a falling knife?

Thu, 01/07/2016 - 19:33 | 7014430 Never One Roach
Never One Roach's picture

Shiller says $20 very possible.

Thu, 01/07/2016 - 21:25 | 7014971 DeadFred
DeadFred's picture

At least we know it won't drop another $70 in the next 18 months. Bet on up or don't bet at all (the last being the safest choice). There just isn't a lot of room left for it to drop.

Sat, 01/09/2016 - 07:47 | 7021079 NoIdea
NoIdea's picture

Oil could drop 80% from here. Seems like a lot of room to me

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