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Jim Hyerczyk

Jim Hyerczyk

Fundamental and technical analyst with 30 years experience.

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Signs Of A Shift In Sentiment Are There, But Where Is The Catalyst?

March Crude Oil Analysis

If you’re watching crude oil prices every day, you will probably say the market is volatile, choppy and directionless. If you’re watching it on a weekly basis, you may say that the market is trading in an orderly fashion. The short-term charts are full of trading “noise”. This is what is causing the two-sided trade.

The fundamentals are also two-sided. There are supply side fundamentals. Demand side fundamentals. Short-term fundamentals and long-term fundamentals. The constant flood of fresh news into the crude oil market is also having a major influence on the price volatility.

This week, some traders believed that the lifting of sanctions against Iran was going to be bearish because it would lead to new supply hitting an already saturated market. Some traders believed that the cold weather hitting the U.S. would be bullish news for heating oil and thus, good news for crude oil

Besides these two events, investors also expressed concerns about a possible meeting between OPEC and Non-OPEC countries. This news could turn into a bullish story if there is an agreement to cut production. However, there were rumors out there that Russia was not expected to go along with the program. These rumors were denied and a new rumor began that Russia would go along with a plan.

The U.S. Energy Information Administration said this week that U.S. crude stocks soared to the highest level on record during the week-ending January 22, 2016. Gasoline stocks increased and distillate inventories fell.

If you prefer to compare the EIA figures with the American Petroleum Institute’s supply number then you will see that the EIA numbers showed a less bearish picture than the API data releases on January 27.

The point is that the price action on the daily and weekly charts suggests a severely oversold market that is ripe for profit-taking and short-covering. In my opinion, short-sellers are using all of these news stories as reasons to book profits after the prolonged move down.

If you trade the markets long enough, you will run into the same problems facing several commodity funds at this time. We all know that the ‘trend is you friend”, however, the intraday and short-term price action indicates there may be aggressive counter-trend buyers coming in to protect the market from future downward price action.

Sometimes you have to overrule your technical trend indicator…




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