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Why The Sustained Bull Run On Oil Hasn’t Materialized

Oseberg offshore

It is, I’m sure, puzzling to a lot of people that after hearing so much news supportive of oil prices this week WTI has failed to even break through the highs achieved a couple of weeks ago at around $47 and, if Friday morning’s early action is any guide, looks set to return to where we were before the news. Just to recap, the week started with confirmation that a serious fire in Canada’s oil sands region reduced Alberta’s production by around 40 percent, or a million barrels a day. Then came inventory numbers that showed a surprise large draw down of crude in the U.S., and finally a bullish monthly report from the International Energy Agency (IEA) that moved from talk of the world “awash” with crude this year to “balance”.

Put all that together and a serious jump in the price of crude would seem to be inevitable given that oversupply has been the real issue for a while now. We certainly saw a jump on each piece of news, but the sustained bull run that one would expect hasn’t materialized, or at least not yet.

(Click to enlarge)

The reason for that lies in the nature of trading. What traders set out to do is to predict the future while using the past as a guide. Technical factors, such as historical price action and previous levels of support and resistance, help to set entry and exit levels for trades, but predicting the future is about analyzing fundamentals. The price action since the middle…

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