29th November - Oil bulls should be dissapointed
03 December 2012
TECHNICALS:
WEEKLY CHART
The market’s in a clear medium-term trading range since the beginning of 2011, with the current leg a bear move thus far from $100 to $85 since September
DAILY CHART
The market has repeatedly tried to get back above the Neckline of the H&S reversal (around $89), and each time it has failed.
The bear case remains in place.
We are sellers here (current price Jan 13 contract 86.49) looking for $76 or so which is also the bottom of the medium-term trading range. Stops around $92 or so.
Of course, once beneath the Prior Low of $70.68, that will act as additional resistance on any attempted rallies, and help ratchet the market on down lower towards $76 and perhaps lower still.
FUNDAMENTALS:
The recent sell off in oil which began in mid -September, driven by growing evidence of economic weakness in the Euro zone, Japan and China and even in the US where the Fed found it necessary to embark on QE3, was interrupted over recent weeks by rising tensions in the Middle East.
The year long civil war in Syria rages on and Turkish territory has been hit on several occasions by apparently stray artillery rounds prompting a swift Turkish response. The tense situation between Israel and the Palestinians once again erupted into open conflict. Israel prepared a ground invasion, which was only averted by an Egyptian brokered cease fire, That didn’t stop Syria trying to escalate tensions by occupying the Golan Heights border region between herself and Israel which is meant to be neutral and under UN supervision.
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But rather than retaliate, Israel complained to the UN who are mandated to monitor the region.
The impact on oil was predictably a rally, but it was surprisingly weak when measured against historic price hikes that have occurred on the back of similar events in the Middle East.
Now with Israel and the Palestinians respecting the cease fire, the oil market has corrected away from the recent highs and traders are refocusing back to economic fundamentals which continue to look fragile.
The OECD only this week warned growth among member countries would be weaker than previously forecast..
Moreover the organisation warned that a global recession cannot be ruled out. Although activity in China has picked up a little, there are growing concerns that she is relying to heavily on investment-generated growth.
With other advanced economies in recession or just managing to grow, there are serious questions being asked about the wisdom of China’s strategy. At some point China needs to rely less on investment and more on home-grown demand.
Asia has already witnessed two occasions when investment dependent economies have suffered a collapse due to a bursting of an investment fuelled bubble. It happened in the mid 1990’s in both Southeast Asia and Japan. Indeed, Japan has yet to fully recover and has been dogged by deflation ever since.
Not so long ago Japan was tipped to over take the US as the world’s largest economy; it didn’t happen, now China is tipped to do the same but seems set to follow the mistakes of her Southeast Asian neighbours.
In the US an energy bonanza is unfolding. By 2017 the US is forecast to be the world’s biggest producer of oil. This has far reaching geopolitical ramifications and economic benefits for the US. The US current account deficit could well disappear and the US budget deficit be dramatically reduced.
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29th Nov - Silver Bulls Struggle at 38.2% Resistance