24th May - How weak is Oil here
24 May 2012
Technicals:
WEEKLY CHART
The weekly chart suggests that the market has pulled back to a critical juncture.
The coincidence of the horizontal and the diagonal supports is important.
And has yet to be broken.
If it is then a return to $75 looks likely
DAILY CHART
This is more bearish.
The prior High support at 90.52 has been smashed.
But the market may be pausing at the Fib support at 90.83.
In any event bears will be waiting for a break in the weekly supports before selling again
FUNDAMENTALS :
The current weakness in oil is a direct result of the growing Euro zone debt crisis.
A Greek exit from the Euro looks increasingly likely after Greek politicians failed to find a formula to allow the formation of a viable government. The leftist political party which emerged as the strongest after elections earlier this month, refused to endorse the austerity program agreed by the out-going government, forcing fresh elections due in June.
In Spain, a crisis continues to brew, along the lines of the one already gripping Greece, only the stakes are higher due to the Spanish economy being much bigger: the 4th largest in the Euro zone.
In France, a new socialist President is now sworn in and already calling for a fresh look at the methods so far deployed to solve the debt crisis. While acknowledging the importance of fiscal austerity, he sees a growth policy as a priority to avoid the ever-growing Euro zone periphery being doomed to a long and damaging recession.
The German position remains unchanged. Austerity is the only way forward. They are still against a pan-Euro zone bond as a means of mutualising the bloc’s fragmented debt ad seem unmoved by the recession that is already gripping the Euro zone Ex-Germany.
In the US the Federal reserve is worried. Only a short while ago they seemed to be laying the ground work for a policy shift some time in the not-too-distant future; now they are talking about the very real risks to US growth posed by the Euro zone.
In fact the FOMC will, if conditions do deteriorate, sanction a further round of Quantative easing to help support growth.
In the UK too, the Bank of England has softened its stance on further QE. Today’s 2nd look at Q1 GDP showed the economy in a weaker position than thought and confirmed the economy is in a double dip recession.
The situation isn’t much better else where. In China manufacturing output looks set to register a 7th straight month of weakness and in Japan data remains at best very mixed with the Bank of Japan committed to further easing measures.
In short the global economy is at risk of recession, due to the seemingly intractable problem of the Euro zone sovereign debt crisis, clearly if the worst case scenario hits, energy and oil demand will shrink.
Add to this the promising noises coming from preliminary talks between Iran and the IAEA ahead of talks between Iran and the major powers, which have led to the suggestion that If Iran engages constructively the Oil sanctions could be partially lifted.
Which ever way you view the oil market, there currently seems more reasons to be Bearish than Bullish. Even the emergency EU summit meant to find a way out of the debt crisis failed to make any new policy proposals.
We judge Oil risks entering a crisis-driven bear market, the inverse of the crisis-driven Bull market in German bunds that allows the German government to borrow 2 year money for free.
Can oil sell off further? Watch developments in the Euro zone closely, but we think it can.
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31st May - How High the Bonds? 
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24th May - USD/JPY Pullback Worrying Earlier Bulls