The energy complex was most interesting this week. Crude oil prices collapsed, led by heavy fund liquidation after another surge in U.S. inventory and production. Natural gas rallied as winter returned after being declared dead about two weeks ago.
Weekly June West Texas Intermediate Crude Oil Analysis
(Click to enlarge)
After consolidating for eight weeks, crude oil prices collapsed, putting the market nearly 7 percent lower for the week. For weeks, we had been reading about the record long positions held by hedge and commodity funds. We also saw that these market players were willing to buy breaks into support, but unwilling to buy strength. This ultimately led to the market collapse because by refusing to come in with enough buying strength to overtake the resistance, they may have inadvertently allowed the short-sellers to gain the upper hand.
Essentially, the hedge and commodity funds, following The Herd Theory, spent all their capital building a potentially bullish position, but then ran out of cash when it was needed to fuel the breakout to the upside.
It was if they thought the OPEC output cuts would be enough to trigger the breakout to the upside and fuel a rally to perhaps $60.00 or $70.00 a barrel. They seemed to have forgotten about the increasing U.S. production. For nine consecutive weeks, U.S. output rose before finally hitting the tipping point this week. They also had nearly a year’s worth of increasing oil rigs…