oil coil, buyers higher

Oil ready to break out, up or down

 

are there any good cot charts? All I can find are really hard to read (Barcharts) or Java or out of date or for pay. This really shouldn't be so hard.

Anyway, the speculators are heavily long, the commercials are heavily short, and oil is in serious backwardation. So I don't quite to know what to make of that, except that the commercials are hedging their downside and the speculators seem to think that there are buyers higher. My general impression is that every expert says pretty much the same thing, that oil is overpriced and will inevitably head back to $80. That makes me think we won't see $80 for a long time.

 

It might break out to the upside but it will quickly fail. Either way it is getting scarier and scarier to be a premium seller.

 

I just don't see it . . . fundamentally, the older fields are declining faster and the new fields suffer from super fast decline rates. The slack in the market is small. The majors like Exxon are not adding reserves, in part because the national oil companies can afford to be more inefficient and keep more and more potential supply off the market. China is literally willing to risk war with her neighbors to claim more supply. Like I said, the wide consensus is that $20 of the oil price is a fear premium. That's why oil is in deep backwardation. But what if that's wrong? It could be explosive.

 

Even Cramer is bearish on oil . . .

http://www.cnbc.com/id/101711728?__source=ft&par=ft


Looking at the latest Commitment of Traders report, Garner notes that large speculators have amassed holdings in excess of 410,000 net long contracts, while small speculators are net long an additional 19,000 contracts. Garner says this is the largest net long position speculators have ever taken in the oil futures since the CFTC started measuring. (Historically, Garner says that 200,000 has been considered a pretty high figure.)

Therefore, Garner thinks the market is facing a situation in which too many investors, on one side of a trade, ultimately capsize the opportunity.

Although it would seem like pervasive optimism is a good thing, at a certain point, when investors get too bullish, the market runs out of new buyers.

That's a big problem if and when bulls get spooked. And looking at the weekly chart of West Texas crude, Garner thinks it's only a matter of time before oil bulls get spooked.

First, she says, oil is facing a ceiling of resistance at $108, and that's where she thinks oil will peak, unless geopolitical events flare. But even if they do, Garner says the next ceiling of resistance is at $112.50, and at those levels, Garner says RSI indicators will put oil in overbought territory.

Because the market tends to be somewhat technically driven, somewhere between $108 and $112.50, Garner expects selling to prevail.

And when oil turns lower, Garner can see it declining precipitously because 1) the volume of bulls that sell out of positions will be much larger than usual and 2) there aren't enough bulls left in the market to buy the decline.

If that happens, Garner expects a vacuum-type selloff. In fact, in these types of circumstances where there are too many oil bulls, she says it's not uncommon to see the price of oil drop by $20 or even $25.

 

I don't see how oil doesn't go higher, and take gold with it. The combination of bad news (but bullish for oil) plus the long term bullish chart = oil higher. All the articles I read say "oil not going higher," which suggests people really aren't ready for $150 oil. Certainly the long term backwardation isn't anticipating higher prices.

 

Looks to me that break of the short term triple top should give us the juice to form the big picture triple top then if that breaks hello 130. But either way we still have an easy 4 bucks on the upside. If we get a close below 104.50 then I know I'm wrong or whip sawed.

 

From Martin Sosnoff in Forbes:

That the energy sector of the S&P 500 Index is just 11%, I construe bullishly. ExxonMobil stock’s weighting is under 3%, but it’s a doggy, up just 3% year-to-date. The history of oil prices these past 30 years suggests a roller coaster ride few of us paid much attention to. Oil spiked at $35 a barrel in 2000 because OPEC had undersupplied the market. Sector weighting for oil peaked above 30%. Shortly thereafter, OPEC came out with their pronouncement that supply would increase by 1.5 million barrels. They wanted to see mid- twenties pricing (I keep good notes).

Futures quotes are totally misleading, projecting the price of oil a couple of years out in the eighties. If you believe this is the right judgment of professional energy players, short the energy index and take a sabbatical.

Twenty years ago, there were five energy related companies among the top 10 market capitalizations. Today, it’s only ExxonMobil and Chevron CVX +0.74% among the top 35 names. Oil’s return on assets average maybe 3% per annum for decades.

Oil was a 6% weighting in the S&P 500 Index around 1990 after peaking in the eighties at 20% of the Index when technology was just 6%. These sectors reversed themselves in the nineties. Currently, tech is at 17%.

 

Demand for crude is derived from demand for the products. Supply is growing while demand declining, hence the steep backwardation in the forward curve. The developed world, in general, is largely working towards energy efficiency and structural evolution.

 

All that shows is that refiners are selling their retail gas stations.