Crude Oil Market Analysis (1/16/07) Today the market resumed its downward trend after staging a short-covering rally on Friday before the three-day weekend. Overnight the market tried to rally above Mondayâs high of $53.55 on the expectation of an OPEC announcement to support the market but failed at $53.19 once the news broke out that Saudi Arabia oil minister Ali al-Naimi rejected the idea of another OPEC cut. The market opened in New York at $52.33, but once it failed to stay above the overnight low of $52.32, it resumed its downward trend. The downward move picked up momentum after the market broke the previous 19-month low of $51.56 set last Friday to drop more than $1.00 to a low of $50.53 before staging a modest short-covering rally to close at $51.21. Todayâs main market fodder is al-Naimiâs announcement that rejected the idea of another OPEC cut before the cut of 500,000 barrels per day is implemented on Feb. 1. This reflects the Saudisâ frustration with the other members of the OPEC for their non-compliance with their respective quotas and sends out a clear signal that Saudi Arabia will not alone share the burden of shoring up the plunging oil price. Another fringe benefit of the plunging oil price to the Saudis is that Saudi Arabia can afford to live with a lower oil price more than its regional rival Iran can, which makes Saudi Arabia less anxious than the other members of the OPEC to announce a third round of production cut. The market fundamental remains weak, and this weakness is further aided today by al-Naimiâs comments. However, al-Naimi correctly observed that the oversupply of crude oil in the market will soon be mopped up as the OPEC continues to implement its production cut. Therefore, $50.00 is approximately the marketâs near-term bottom. Technically, the market remains very weak, as the market has set a new 19-month low in each of the last six trading sessions with $55.10, $53.88, $53.44, $51.80, $51.56, $50.53 (todayâs session started on Sunday). The market will need to trade above $53.55 to rally towards $55.00 and face a psychologically important support at $50.00, although the technical support is at $49.35. Tomorrow if the market cannot stay above Fridayâs low of $51.56, it will be again under pressure to test $50.00 due to the expectation of gasoline and distillate stock build in Thursdayâs DOE report. If the market can stay above $51.56, it will trade inside todayâs range of $50.53-$53.55. Strategy: Hold short at $54.75 with a stop at $53.70; take profit at $50.20. Dr. Chen P.S. If you wish to read my previous Crude Oil Market Analyses, please go to the archive at http://energyfutures.blogspot.com/
Dr. Chen, You have a bad link for your url (page not found) because you've included in error a period at the end as part of the url. Here's the correct link http://energyfutures.blogspot.com/ Here's the link you keep posting... http://energyfutures.blogspot.com. Mark
Mark, Thank you very much for correcting the bad URL! It seems that the modern technology and the correct English grammar cannot coexist, and I have to choose the former over the latter. Upon your kind suggestion I have corrected the URL address. Dr. Chen
I think oil keeps on a' droppin'. Several reasons, all interrelated. 1. Main oil-producing countries in MidEast have had their markets clobbered, and they are in need of cash to shore up their domestic obligations. = sell 2. Over-leveraged longs (hedge-funds, etc, commodity funds) are likely to be at/near the level(s) where they are near the brink of collapse and or failure(s), and, on the other side(s) of their trades are their clearing firmss, (often, they are counterparties, so they may have a vested interest in the outcomes, and last I heard, they're not in the business of charity) which know, in no uncertain terms, the positions and the extent to which their 'customers' may be compromised. 3. Enter now the floor-trader community, and other funds, which, upon word that a fund(s) is in trouble, will pile-on without hesitation, compromising any funds mercilessly. 4. In such event, the Sauds will not be able to resist or support any freefall, in fact, they may have to sell (keep selling) themselves, to continue to meet their own obligations, (see above), even as they do some 'soothsaying', or express they may have 'emergency production cuts'. 5. In addition to their normal obligations, the US is now about to ask that regionals in MidEast pick up some slack in Iraq, so, if they do, (and they likely don't wanna do this), there's more juice down the rat-hole they need to cough up, so, keep selling, at any price, in part to prepare for 'unexpected', as well as and in addition to current obligations. 6. Iranian hot-shot recently met with Hugo the Hutt, (related to Jabba, looks like). Their meeting is a tacit admittal that the declining price of oil is way beyond their control, and, in attempting to 'bully' the market in any way they (think) they can, they have thrust themselves into each others arms, presumably to make others think they will somehow coerce or support prices via threats and or other bs tactics. They're reaching for straws. There's a couple three more, but I can't think of them right now. But you get the idea. 7. The fever in the oil patch has now broken, and the technicals have turned in favor of lower prices. = there will be less interest in oil, as a slam-dunk momentum play, so, more exodus from a technical standpoint, which may be even more pronounced as / if prices get lower, it'll become a 'stay-away' market, and sel-fullfill. I see support at 30.
OPEC tries to cut but Iran, Venezuela and pals keep cheating and overselling because they need the cash. Saudi is the only responsible party and soon they are going to get annoyed that no-one is playing game. I suspect they may also pile on production soon just to teach Iran etc. who's the real boss. Then we'll see oil hitting the 40's... I think Opec's days are numbered.
http://stockcharts.com/h-sc/ui?s=$WTIC&p=W&b=1&g=0&id=p33279543873 How do any of you see support at 30?
Crude Oil Market Analysis (1/17/07) Mea culpa! The Crude Oil Market Analyses had called for âtak[ing] profit below $50.40 for three days from Jan. 10 to Jan. 12, but yesterdayâs Crude Oil Market Analysis called for âtak[ing] profit at $50.20.â Todayâs market low was $50.28. The last eight cents turned out to be the most expensive eight cents in the current trade! As Crude Oil Market Analysis forecast yesterday that âtomorrow if the market cannot stay above Fridayâs low of $51.56, it will be again under pressure to test $50.00,â the overnight high was $51.63. Since the market could not stay above $51.56, it was under pressure to test the psychological support at $50.00 and dropped to a low of $50.28 after Saudi Arabia oil minister al-Naimi said that Saudi Arabia will continue its expansion in oil exploration. However, once the market found support near $50.00 and could not break it, it staged a sharp rally of nearly $2.00 to close at $52.24. Fundamentally the market remains weak. Tomorrowâs IEA report will likely state that OPEC has cut far less production in December than its announced target of 1.2 million barrels per day, a point echoed today by Petrologistics report that OPECâs Jan. production will be 27.1 million barrels per day excluding Iraq, 800,000 barrels per day more than its target of 26.3 million barrels per day. Adding to the pressure will be tomorrowâs DOE inventory report, which will likely show continued build in gasoline and distillate stocks. Despite the likely drop in refinery input due to maintenance for spring operation, crude oil inventory is unlikely to build unless crude oil import, which is notoriously difficult to predict, exceeds 10.0 million barrels per day. Although gasoline production will likely decrease due to reduced refinery turnaround, the inventory will likely build around the Wall Street forecast of 2.2-2.6 million barrels due to the sharp drop in demand to slightly above 9.0 million barrels per day from last weekâs 9.201 million barrels per day after the holidays. Distillate inventory will have a gain of around 2.2 million barrels rather than the Wall Street forecast of 1.2-1.5 million barrels due to rebound in demand to just above 4.1 million barrels per day from last weekâs 3.979 million barrels per day. Barring any surprises in the continued below-average crude oil import, the market risk remains on the downside. Technically, the market remains weak, as the market has set a new 19-month low in each of the last seven trading sessions with $55.10, $53.88, $53.44, $51.80, $51.56, $50.53, $50.28. The market needs to trade above $53.55 to rally toward $55.00. Strategy: Hold short at $54.75 with a stop at $53.70; take profit at $50.40. Dr. Chen P.S. If you wish to read previous Crude Oil Market Analyses, please go to the archive at http://energyfutures.blogspot.com/