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Crude Oil: Flip A Coin

Seeking Alpha

by: Viking Analytics

Summary

With confirmed break above $49/bbl (“heads”), crude will likely resume its uptrend.

With confirmed break below $47/bbl (“tails”), crude will likely begin a new downtrend.

In the short run, supply and demand is a mere headline and has little effect on price direction.

Introduction

Last week, we outlined a bearish case for crude oil and the United States Oil Fund (NYSEARCA:USO). After a surprisingly bullish EIA report on Wednesday following only a mildly bullish API report on Tuesday evening, we have updated our near-term outlook to a coin flip. After the EIA report, we covered our short position and went long at $47/bbl and selling yesterday when the market appeared to be drifting back below $48/bbl.

We have shifted back to a long bias, based upon a belief that OPEC and other market makers have a vested interested in keeping the oil price higher, not only for the Saudi Aramco IPO scheduled for 2018, but also for the financial health of oil exporting countries worldwide. We have covered these issues in prior articles.

On the other hand, the market has been oversupplied with oil for more than two years. While there have been glimmers of hope for supply-demand re-balancing, oil supplies in the U.S. remain at all-time monthly highs. If the price of oil was in the $20s at lower inventory levels, who is to say that it cannot return there?

The USO ETF closely follows the front-month WTI crude oil futures contract on NYMEX, since it holds the front-month futures contracts as its primary asset. USO can be useful for short-term trading positions, but is not always a great candidate for “buy and hold” investors, due to time decay created by the normal structure of the futures market. We covered that briefly in an article that can be accessed here. We have updated our indicators for USO investment, and the above table summarizes our current outlook.

Weekly Outlook of Crude Oil Futures

Crude Oil Futures – Weekly Outlook: December 19 – 23

© Reuters.  Oil posts weekly gain on signs producers will comply with output cuts© Reuters. Oil posts weekly gain on signs producers will comply with output cuts

Investing.com – Oil futures finished higher on Friday, turning positive for the week amid indications that major crude producers are adhering to their promise to pull back on output.

On the ICE Futures Exchange in London, Brent oil for February delivery jumped $1.19, or 2.2%, to settle at $55.21 a barrel by close of trade Friday, not far from a 17-month high of $57.89 touched earlier in the week.

London-traded Brent futures logged a gain of 88 cents, or 1.6%, on the week.

Elsewhere, on the New York Mercantile Exchange, crude oil for delivery in February tacked on 98 cents, or 1.9%, to end the week at $52.95 a barrel, within sight of a one-and-a-half-year peak of $54.51 logged on December 12.

For the week, New York-traded oil futures rose 40 cents, or 0.8%.

Russian Energy Minister Alexander Novak said on Friday that all Russian oil companies have agreed to cut crude output under Moscow’s agreements with members of the Organization of the Petroleum Exporting Countries.

In addition, Kuwait reportedly notified customers that it would cut supplies from January as part of an effort by OPEC to stabilize the oil market.

OPEC members have agreed to reduce output by a combined 1.2 million barrels per day starting from January 1, their first such deal since 2008.

However, there are some worries in the market about production increases in the U.S. and Libya.

Oilfield services provider Baker Hughes said late Friday that the number of rigs drilling for oil in the U.S. last week rose by 12 to 510, a level not seen in almost a year.

Meanwhile, Libya, which is allowed to ramp up production as part of the OPEC deal, restarted operations at two key oilfields. Libyan officials said the restarting of the oilfields and a connected pipeline could bring back more than 200,000 barrels a day of oil within days.

In the week ahead, market participants will eye fresh weekly information on U.S. stockpiles of crude and refined products on Tuesday and Wednesday to gauge the strength of demand in the world’s largest oil consumer.

Oil traders will also continue to pay close attention to comments from global oil producers for further evidence that producers will stick to their agreement to cut production next year.

Ahead of the coming week, Investing.com has compiled a list of these and other significant events likely to affect the markets.

Tuesday, December 20

The American Petroleum Institute, an industry group, is to publish its weekly report on U.S. oil supplies.

Wednesday, December 21

The U.S. Energy Information Administration is to release weekly data on oil and gasoline stockpiles.

Friday, December 23

Baker Hughes will release weekly data on the U.S. oil rig count.

What’s Next?

What’s Next for Crude Oil; Higher Prices or CrashCommodities / Crude Oil

By: Sol_Palha

Commodities

“If the doors of perception were cleansed everything would appear to man as it is, infinite. For man has closed himself up, till he sees all things thru chinks of his cavern.” ~ William Blake

2016 started with all the Drs of Gloom stating that oil was heading lower and many even predicted that it would trade down to $10.00. It was kind of interesting to watch this circus as there is a saying the cure for low prices is usually low prices. It would have made sense to take a firm stance against oil when it was trading above $100, but not when it was trading in the $30.00 ranges. These same experts were busy proclaiming higher prices when oil was trading north of $100.00. Only when oil was close to putting in a bottom, did they muster the courage to issue even lower prices; they would have been well served by simply keeping quiet. Experts were all trying to outdo each other; each one is releasing lower prices and a gloomier scenario. Here are some examples of the stories being put out at the time:

Get Ready for $10 Oil: Bloomberg on Feb 2016

Oil could crash to $10 a barrel, warn investment bank bears:  telegraph.co.uk on Jan 2016

Oil Seen Heading to $20 by Morgan Stanley on Dollar Strength: Bloomberg on Jan 2016

Goldman Sees Risk of Oil Below $20: Bloomberg Feb 2016

At that point, we knew that a bottom was close at hand and on the 20th of January, 2016 we penned the first of many articles on oil. This is what we said back in Jan:

As it has closed below the psychological level of $30 on a weekly basis, it is likely it will experience one more downward wave before a tradable bottom is in place. A move to the $23-$25 ranges is now a strong possibility, and as long as oil does not close below $23.00 on a weekly basis, oil will start putting in a slow bottoming formation. Once a bottom is in, do not expect miracles from oil, trading will probably be limited to a tight range of $24.00-$36.00 for some time. Only a monthly close above $40 will signal that the trading range is going to shift to a slightly higher zone of $36.00-$58.00 with a possible overshoot to $65.00. Full Story

It is remarkable how these so-called experts always start to clamour and make the most noise when a market is either going to top or bottom. It would be fine if the advice they offered were of value, but they seem to tell you to buy when it is time to sell and sell when it is time to buy. In other words, their advice is usually on par with rubbish.

Marketwatch.com jumped the gun when they penned the following article

Why oil prices will head back toward $20 next winter:  Market watch May 2016

Now that oil is trending upwards; we won’t be surprised if articles calling for oil $100 start to surface again.

Oil traded as low as 26.14 and then reversed course and started to trend higher. It came within $1 of the top of our suggested targets. We also stated that oil needed to trade above $40.00 on a monthly basis which it has done. It’s now on course for a test of the $55.00-$58.00 ranges, with a possible overshoot to the $60.00 ranges. Fulfilling what we stated in an article titled Mass Psychology predicted crude oil bottom 2016 that was published in March of 2016; an excerpt of this article is listed below:

Notice that the $30.00 price point level has held on a monthly basis. Oil has not closed below this important level on a monthly basis for two months in a row, and this has to be viewed a very bullish development. Our overall view is for crude oil to trend higher with the possibility of trading past the $55.00 ranges. In the face of extreme negativity, oil is reversing, just as it collapsed in the face of Euphoria. A weekly close above 35.00 will set the foundation for oil to trade past the main downtrend line and in doing so send the first signal for a move to the $50 plus ranges.

Now that oil has traded as high as $52.22, what does the future hold for oil? Is it going to reverse and crash due to a stronger dollar as was the case with Gold or is it going to continue trending higher. Let’s take a look at the charts.

Light Crude Weekly Chart

We would like to start off by stating that the trend is still up, so all pullbacks have to be viewed through a bullish lens. We did not feel the same way about Gold, and we stated that early in the year that we did not expect much from Gold. That has panned out so far; as oil has buried gold regarding gains on a percentage basis.

Oil is now sitting on a zone of former resistance, and while the market is somewhat overbought, oil could still trend to our higher targets ($55.00-$58.00) without pulling back. For this to occur, oil cannot close below $49.00 on a weekly basis. A close below $49.00 on a weekly basis will result in a minor pullback to the $45.00 ranges. Long story short, oil either trades to the $55.00-$58.00 ranges from here with a possible overshoot to the $60.00 ranges or it pulls back to the $45.00 ranges before trading to the above-suggested targets. After oil trades to the $58.00 ranges, we do not expect much from it. After topping out we expect it to test the  $45.00-$48.00 ranges.

Conclusion

The trend is still bullish, and until the higher end targets of $55.00-58.00 are hit, or the trend turns negative, all sharp pullbacks should be viewed through an optimistic lens. The trend is showing no signs of weakness so it would take a rather significant development for it change. As oil has traded as high as $52.00 the bulk of the upward move we projected earlier in the year is completed; all that is left is for the upper-end targets to be hit; after that oil is expected to trend lower slowly. We are not expecting a crash but a consolidation; we will examine the longer term outlook after crude oil tops out.

“Only in quiet waters things mirror themselves undistorted. Only in a quiet mind is adequate perception of the world.” ~ Hans Margolius

by Sol Palha

www.tacticalinvestor.com

Sol Palha is a market analyst and educator who uses Mass Psychology, Technical Analysis and Esoteric Cycles to keep you on the right side of the market. He and his partners are on the web at www.tacticalinvestor.com.

© 2016 Copyright Sol Palha- All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

US crude oil slips into bear market

MarketsUS crude oil slips into bear market

The primary US crude oil benchmark has slipped into bear market territory – a drop of over 20 per cent from its recent peak – a move that renews pressure on the energy industry and oil-dependent countries.

West Texas Intermediate has slipped from an intraday high of $51.67 per barrel on June 9 to $41.14 on Thursday afternoon, a drop of 20.4 per cent, as a glut in oil-derived products has once again weighed on demand for the commodity, writes Robin Wigglesworth.

Oil prices are still comfortably above the nadir touched at the start of the year and Brent oil, the North Sea benchmark that is the most used international measure of crude prices, is still hovering just over bear market territory, falling 19.2 per cent since its June peak.

Energy stocks have held up better than they did in the oil crashes of earlier this year and 2015, but slipped 0.2 per cent on Thursday – while the broader S&P 500 gained 0.2 per cent – and have lost 4.4 per cent since the peak earlier this month.

“Investors need to keep an eye firmly on oil prices at the moment,” Nicholas Colas, chief market strategist at Convergex, said in a note. “Crude oil price volatility is clearly moving higher, and history says that it is a setup for a move lower for stocks since crude prices are declining.”