26th April - Resilient Oil frustrates the bears
27 April 2012
TECHNICALS:
WEEKLY CHART
Note the bull H&S pattern that has completed.
The retest of the neckline has been disappointing for the bulls.
But equally the bears will have been frustrated.
The Neckline has been tested but not yet convincingly penetrated.
The H&S pattern may yet be intact.
DAILY CHART
The detailed analysis shows the defeat of the bears.
Repeated attempts to break beneath the Neckline support have failed.
There may even be a small H&S Reversal pattern in the offing.
Watch closely for a break up through the falling diagonal and the possible Neckline at 105.
FUNDAMENTALS:
Two months ago the oil price looked set to go through the roof. The US economy looked on the verge of moving up a gear and traders were gripped by the thought of some kind of armed confrontation with Iran, as the Iranian authorities seemed to be moving doggedly towards developing a nuclear weapon in open defiance of world opinion.
And even though the Euro zone debt crisis was still a major issue, the Oil price was at its recent highs. Then a correction set in. The dynamic behind it was Iran agreeing to new talks about her nuclear program. And although many thought nothing much would come of them, including us, as they were seen as merely a delaying tactic by Iran to allow her to press ahead with her nuclear ambitions, the oil market took it more positively.
Almost at the same time, the run of US economic data turned a little mixed and the Euro zone debt crisis re-emerged yet again and for a while it seemed oil could correct much lower, but it didn’t: Why?
The Euro zone debt crisis remains very much a live issue, with Spain, Italy and Portugal still causing concern. France too is back under the spot light as she looks set to elect her 1st socialist President for 17 years who has made re-negotiating the Euro zones austerity drive a central element of his electoral platform.
Additionally, Holland is in political turmoil too, as her government fell this week over the implementation of austerity measures, in short there are still reasons to expect oil to move lower, but the market has steadily rallied over recent days, and at a time when an Israeli defence official raised doubts that Iran intended to build a nuclear weapon at all; strong stuff from a country that has been in the vanguard of those calling for a pre-emptive strike against Iran’s nuclear facilities.
Iran is suffering from sanctions imposed by the west. The EU has banned the import of Iranian oil and Iran has a large proportion of her tanker fleet moored up as floating storage tanks because there are currently no buyers for her oil.
The US economy, despite some erratic data is on the mend and at this week’s FOMC meeting, Fed officials made it clear that although there are still downside risks that could potentially damage US growth, they judge the economy is steadily recovering and moreover, they said it may no longer be appropriate to keep interest rates unchanged until late 2014.
At the same time the Chinese economy continues to grow, albeit at a slightly lower rate of around 8.1% with Chinese consumers displaying a voracious appetite luxury fast cars. And even India has acted to boost economic activity with an official interest rate reduction of 75bp, which has led leading commercial Banks to ease by 100bp.
So while there isn’t one headline grabbing reason for the Oil price to begin moving higher, there are several individual reasons why oil demand is firming.
How much higher the market can go depends on several key factors. If Iran really is serious about negotiating and can convince she isn’t building a nuclear weapon, sanctions will be eased and her oil supply re-enter the market – that’s bearish.
Another bearish factor is the re-entry of Libyan oil to the market. But what would out weigh all of this is a full blown US economic recovery which would fuel growth globally especially in China and Japan and that could send the Oil price higher.
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03rd May - Coffee Downmove Temporarily Loses Momentum 
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26th Apr - New Downleg in Sugar Underway