Crude Oil

You guys have *excellent* points about supply vs. demand. Of course, countries like China and India are growing and will need more oil. Iran, hurricane season, driving season, etc. Its all ahead of us.

However, what about "supply". Rig counts are up and there is plenty of oil supply out there. Its hard to control a bunch of young 1st graders just like its hard to control a bunch of oil pumpers.

You can make an argument for demand, but the fact is that there are more rigs out there now then at anytime in many years all pumping away full blast.

We are now at a turning point for oil. A huge turning point.

The reason why I say this is because oil is still in a huge macro downtrending channel on the charts. It is right now at the top of that channel where the price of oil could fall through the trap door and *easily* make it to 51 dollars and possibly lower.

However, if it does break through the roof of the macro channel, it could go to over $80 *easily*.

If we follow the general theory of retracement which is after a huge selloff an instrument will tend to retrace 50% of the selloff, you can see that we are there. Subtract the height of the summer season 06 by the January low, divide by two and then add that number to the low. Perfect technical retracement.

The question is now is oil in a bear market and this a retracement rally or is oil in a bull market and this is just a simple correction in the uptrend.
 
Maybe you guys should take a look at the Commitment of Traders report. Record commercial shorts, record speculator longs....not exactly a prescription for higher prices. Then there is the record inventory at Cushing, OK.

OldTrader
 
yes, that is consensus thinking.

Quote from scriabinop23:

with the current supply and demand situation being tighter than last year, and a whole hurricane season ahead of us, I anticipate we'll be at 68 to 70 within a few weeks.

If it falls out of bed, it'll likely occur only if OPEC (er saudi arabia) floods the market with supply during the same season as last yr.

Notice we haven't heard anything about Iran lately? Problem solved?

hahah...
yea right.

Watch as hurricane season intensifies Ahmedinejad gets on the podium to say something to exacerbate things ... just at the right time. His interest is in keeping oil expensive.
More...
 
Here is my analysis. Crude oil started its bull run in 1999 when it finally bottomed at 10.38 per barrel.

It then ran to a high of 37.80 in September of 2000 where it then pulled back to 17.12 in November. This correction was not a bear market, but, in fact, a correction in the face of a bull market.

$37.80-10.38= 27.42

27.42X (2/3)= 18.28 price target

Actual price target= 17.12

The chart was originally setting up for a 50% correction but two volatility events caused the correction to the 2/3rds level, the recession and the 9/11 attack.

I will continue in the next post with another chart.
 

Attachments

Then 2003 came along where we had a fantastic correction in short time from 39.99 to 25.04. This was in-part due to the Iraq war. Again, this was not a bear market marker, but simply a correction in the macro trend that had started in 1999.

39.99-17.12=22.87

22.87X 2/3= 15.25

39.99-15.25= $24.74 theory price target

Actual price bottom= 25.04
 

Attachments

In 2004, we saw another major correction from 55.65 to 40.25.

Again, another correction during a bull market.

55.65-21.12= 34.53

34.53/2= 17.26

55.65-17.26= 38.39 theory price target

Actual target= 40.25

Then we had another price correction from 70.85 to 56 dollars at the end of 2005.

70.85-40.25= 30.6

30.6/2= 15.30

70.85-15.30= 55.55 theory target

actual price= 56.00

Then there was the "big one" where we corrected from 79.86 to 57.05 making some market participants fully believe that we were in a bear market for oil.

This correction was unlike any other, because in past corrections we could take a calculator and make these simple calculations all day long. The chart had a lot of symetry, but wait...there was one calculation that was forgotten.

79.85-17.12= 62.73

62.73/2= 31.36

79.85-31.36= $48.49 theory price

Actual obtained price= 51.03

17.12 is the sept 11th 2001 low

Therefore I have concluded that we are still in an oil bull market. The chart still has symetry, however, the recent correction was on a macro scale then the smaller corrections of the past. This might be a macro measured move.

If this is a macro measured move before the next leg up, then the price target would be 51.03+62.73= 113.76.

Please note that each chart takes place over the course of 3 years. $113 wont come overnight. It will most likely come over a period of 4 years.

There will be twists and turns in the chart that might cause a person to disbelieve the oil bull. These trends are only natural.

I have presented you trading charts and simple theory to prove my argument. Now let me present fundamentals.

During the last oil bull in the late 70s, there was over 6000 rigs operating in the world. There was much less people and industry then there is right now. There was much less cars, airplanes and other oil consuming devices then.

Today there are 3500 rigs in the entire world or almost half that of the early 80s. During the oil bear (1983 to 1999) there was a heavy drop in the number of rigs operating. The rig count was the first to drop and that number dropped hard. In 2 years from 1981 to 1983, the number of rigs operating went from a little over 6000 to half that. The number of rigs operating bottomed out in 1999 (a little over 1000 rigs operating worldwide).

There are no signs that the rig counts are dropping. A higher rig count is directly associated with a higher oil price.

http://www.wtrg.com/rigs_graphs/world/rigwld.gif

In the background of the chart, you can see the price of oil. However, do not let this chart fool you. Adjusting for inflation, oil was about $82 in 1981. If this was an inflation adjusted chart, then the real picture emerges. A gigantic cup/handle.

The question of "fear" emerges. Is the fear of the Iranians driving oil? The answer is no. During the 80s, Iran and Iraq were in a constant war that killed over 1 million people. We had the Soviets pointing nuclear missiles at us and children hiding under desks in missile drills. Yet, the price of oil went down.

Supply and demand drive oil prices, not fear. There are more people on this earth then ever before and foreign countries are starting to come out of their shell. Communism is no more and the world moves forward. The demand for oil is driving the price.
 

Attachments

You must log in or register to reply here.
Back
Top