25th October - How far will Oil slip?
28 October 2013
TECHNICALS:
WEEKLY CHART
The market has had a sharp reverse.
The second failure at 108.91 is bearish.
The fall back through the top of the Triangle is important.
The break back through the medium-term prior Highs is still more important.
There is no support until the 85 level.
DAILY CHART
The short-term picture adds more bear evidence to the situation.
The completed H&S pattern that was the catalyst for the sell-off that broke the supports has a minimum target of 92.
Note that the completion of the H&S pattern coincided with the breakdown of a parallel channel
AND the break of the support from the old neckline..There’s more to come on the downside.
FUNDAMENTALS:
The oil market has been stuck in a wide trading range for many months. As the economic recovery seemed to gain momentum in the US earlier in the year, the Euro zone showed tentative signs of emerging from recession and Japan’s economy registered solid growth, oil tested the upper boundary of the range.
Even the heated debate about the Fed and its tapering policy that occupied most of the summer, failed to bear down on the oil price as traders judged the Fed must have been confident enough about the strength of the recovery to even consider reducing its monthly bond purchases.
But then the protracted wrangle over US fiscal policy and the debt ceiling surfaced. At first it was assumed politicians would resolve their differences, but as it became increasingly obvious that the policy gulf between the House Republicans and the President was so wide, markets began to think the unthinkable; a US Sovereign debt default.
And even though most market participants continued to believe the parties would ultimately strike a deal, the clock was ticking down and default changed from being a remote possibility to a very real risk, right up until almost the hour that the debt ceiling was due to expire and a deal was clinched.
The impact on oil was clear; the market began a move away from the recent highs around 104-108. What made matters worse though was that the Federal government was forced into a partial shut down which meant key US economic data wasn’t released, so for two weeks or more it was impossible to gauge the true strength of the US economy.
That changed this week when the back log of data began to be released with the non-farm payroll released on Tuesday. The report fell well short of market consensus and indicated the economy was already showing signs of cooling even before the government shut down had began.
It was well understood that economic activity would be adversely affected by the government shut down as employees were sent home on unpaid leave and firms dependant on government contracts did the same, but with the economy apparently already cooling in advance of the shut down, support in oil began to slip away.
Add in the fact that the current underlying state of the US economy may not be known for several weeks until the impact of the shut down has worked its way through, meaning traders are left to assume the economy has entered a new weak phase.
But this isn’t the only negative hitting oil. Over recent weeks the new government in Iran has shown what appears to be a real willingness to negotiate an end to the stand off between the west and Iran over her nuclear program which has long been suspected to be a weapons program.
Some progress has already been made and if the issue can be resolved, Iran will again be able to export its oil. This would be a significant development and add to supply at a time when the US is on course to become the worlds largest oil producer after years of being its largest importer as a result of the shale oil/gas revolution.
While it may well turn out that the weak payroll number seen this week was no more than a blip in an otherwise recovering labour market, until that is known the combination of apparent US economic weakness and prospect of renewed Iranian oil exports, albeit still some way off, will act to force the oil price lower.
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31st Oct - Wheat Recovery Stalls at Dual Resistance 
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24th Oct - Support Break in Cotton #2 Spurs Bears