15th April 2018- Whatever happens, oil wants to go higher
16 April 2018
TECHNICALS:
MONTHLY CHART
MONTHLY CHART
The huge bull support from the null Head and Shoulder reversal in the month chart is still having a powerful effect.
The minimum move implied by the pattern is clear at least as high as $100.
The market has bounced off the $40 level twice.
DAILY CHART
And short-term there is a clear completed bull continuation triangle set to drive the market at least as far as $76.
Short and long-term the charts are in alignment: the bulls are in charge.
FUNDAMENTALS:
Over recent months the oil market has struggled to come to terms with the competing forces of the OPEC/Russia output cut designed to rebalance supply/ demand and the growing output from US shale reserves.
Although shale production costs have been falling that method of extraction is still more expensive than traditional production methods.
So as the OPEC countries manoeuvred to drive prices higher, US shale producers benefited from the higher prices because they made expensive shale production more profitable. The result has been oil prices have risen but at a slower pace than during previous episodes of OPEC oil price manipulation.
The outlook for the oil market had anyway started to look bullish because the long- term aim of OPEC/Russia of running down the oil glut seemed finally to be coming to fruition as the IEA recently reported that oil stocks held in storage is set to drop below its five year average.
There are other forces at work as well. The geopolitical situation in the Middle East is always fragile and regional conflict never seems far away.
First, Saudi Arabia has been waging a war in the Yemen in support of the government against rebels backed by Iran.
Second, the civil wars in Iraq and Syria complicated by the so-called Islamic State. Although that group is all but defeated, the war in Syria continues.
With Russia and Iran backing the Syrian government regime and the US backing the rebels trying to remove Bashar Al Assad from power, the prospect of a clash between the US and Russia has been a major risk. Though throughout this unhappy affair the US and Russia have tried to accommodate each other’s interests and avoid direct conflict.
That accommodation appeared at breaking point after the Syrian government, which is essentially fighting its own people as it seeks to retain power, launched a chemical weapons attack on a rebel held town last weekend.
The Russians warned they would shoot down any missiles or planes attacking Syria and will also would target the platforms from where they are launched.
Undeterred, the Allies anyway attacked Syrian military assets – though seemingly warned the Russians sin advance.
We sense all sides will continue to try to avoid a wider conflict but the possibility of a miscalculation must mean that Syria remains a bull factor in the oil price since a convincing resolution is far from clear.
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