• 35 mins Iraq Struggles To Replace Damaged Kirkuk Equipment As Output Falls
  • 6 hours British Utility Companies Brace For Major Reforms
  • 10 hours Montenegro A ‘Sweet Spot’ Of Untapped Oil, Gas In The Adriatic
  • 12 hours Rosneft CEO: Rising U.S. Shale A Downside Risk To Oil Prices
  • 13 hours Brazil Could Invite More Bids For Unsold Pre-Salt Oil Blocks
  • 14 hours OPEC/Non-OPEC Seek Consensus On Deal Before Nov Summit
  • 15 hours London Stock Exchange Boss Defends Push To Win Aramco IPO
  • 16 hours Rosneft Signs $400M Deal With Kurdistan
  • 18 hours Kinder Morgan Warns About Trans Mountain Delays
  • 1 day India, China, U.S., Complain Of Venezuelan Crude Oil Quality Issues
  • 1 day Kurdish Kirkuk-Ceyhan Crude Oil Flows Plunge To 225,000 Bpd
  • 1 day Russia, Saudis Team Up To Boost Fracking Tech
  • 2 days Conflicting News Spurs Doubt On Aramco IPO
  • 2 days Exxon Starts Production At New Refinery In Texas
  • 2 days Iraq Asks BP To Redevelop Kirkuk Oil Fields
  • 2 days Oil Prices Rise After U.S. API Reports Strong Crude Inventory Draw
  • 3 days Oil Gains Spur Growth In Canada’s Oil Cities
  • 3 days China To Take 5% Of Rosneft’s Output In New Deal
  • 3 days UAE Oil Giant Seeks Partnership For Possible IPO
  • 3 days Planting Trees Could Cut Emissions As Much As Quitting Oil
  • 3 days VW Fails To Secure Critical Commodity For EVs
  • 3 days Enbridge Pipeline Expansion Finally Approved
  • 3 days Iraqi Forces Seize Control Of North Oil Co Fields In Kirkuk
  • 3 days OPEC Oil Deal Compliance Falls To 86%
  • 3 days U.S. Oil Production To Increase in November As Rig Count Falls
  • 3 days Gazprom Neft Unhappy With OPEC-Russia Production Cut Deal
  • 4 days Disputed Venezuelan Vote Could Lead To More Sanctions, Clashes
  • 4 days EU Urges U.S. Congress To Protect Iran Nuclear Deal
  • 4 days Oil Rig Explosion In Louisiana Leaves 7 Injured, 1 Still Missing
  • 4 days Aramco Says No Plans To Shelve IPO
  • 6 days Trump Passes Iran Nuclear Deal Back to Congress
  • 6 days Texas Shutters More Coal-Fired Plants
  • 7 days Oil Trading Firm Expects Unprecedented U.S. Crude Exports
  • 7 days UK’s FCA Met With Aramco Prior To Proposing Listing Rule Change
  • 7 days Chevron Quits Australian Deepwater Oil Exploration
  • 7 days Europe Braces For End Of Iran Nuclear Deal
  • 7 days Renewable Energy Startup Powering Native American Protest Camp
  • 7 days Husky Energy Set To Restart Pipeline
  • 7 days Russia, Morocco Sign String Of Energy And Military Deals
  • 8 days Norway Looks To Cut Some Of Its Generous Tax Breaks For EVs
Alt Text

Is South America Set For A Gold Rush?

A Chinese gold miner is…

Alt Text

Will Ecuador’s Mining Sector Return To Its Golden Days?

Despite the recent political problems…

Dian L. Chu

Dian L. Chu

Dian L. Chu, is a market analyst at EconMatters.EconMatters  is made up of a team of financial and market analysts who research, analyze, and write…

More Info

Technical Analysis of the Global Oil Market

Technical Analysis of the Global Oil Market

When discussing this analysis we shall focus on WTI, the markets trade together for all intents and purposes, just that Brent trades $20 higher, give or take $3, depending upon certain European and Middle East news, and contract rollover repositioning (i.e., Brent contract rolls before WTI).

King of Day Trading

Brent has gained importance, and is used much more for benchmark due to the fact that it better represents global prices, and most refiners sell their end products based upon the Brent contact. However, WTI is still the undisputed King of Day Trading, and has the dedicated Pit presence in New York which runs from 8:00am to 1:30pm CST, and ultimately is still where all the consistent, major price discovery takes place. Or to say it non-euphemistically, the Pit is where all the action is! So WTI is still by volume the most widely traded crude oil contract in the world on a consistent basis, and we will base our technical analysis on the WTI CL contract.

WTI has traded in a largely range bound manner for the last two months with the bulk between $85 on the downside and $89 on the upside, a very tight $4-dollar range. We have had push downs intra-day all the way to just below $84, and push-up moves just above $90.  Nevertheless, price didn`t stay there long as buyers and sellers jumped all over those price levels, and made money as price moved back to the meat of the trading range, which is where we currently find CL at approximately $86 a barrel after the first week of December.

Oil Trades

Fundamental WTI

Expect a push-up with all other risk assets if we get some semblance of a fiscal cliff deal or expect a push- down if we fall off the cliff. Depending upon the makeup of the fiscal cliff deal, i.e., the Grand Design, or just kicking the can down the road with a minimalist measure, there will be some type of rally in crude oil.

Related Article: Why Obama May Mint a Trillion Dollar Platinum Coin

Crude oil, unlike equities, will still have to account for the fundamentals which have been bearish, and could temper any rally from developing into a sustained trend. For example, even though crude oil is being purged for tax purposes and refineries are running at a 90% run rate, it is barely making a dent in crude oil supplies, and the end products are starting to build inventories because the demand for end products just isn`t strong enough right now.

Rising petroleum end product inventories means less need for oil in the future. I expect products to build with slight draws in crude oil through the end of the year. If we get builds in both crude oil stocks and end product stocks, it will put downward pressure on oil, and we will test the $84 level to validate whether that level holds through the remainder of this year.

6 month oil trades

Technical WTI

Oil trades like an asset class similarly to equities or gold.  If we have an event where major selling occurs in all asset classes, this is the most likely scenario for buyers stepping away from the $84 level, and letting WTI fall to the next level of support at around the $80 level, with the next support at $78 a barrel. These are the near-term levels of support that have always supported the contract, and where buyers have stepped in after major push downs, usually liquidation events are responsible for reaching the $78 level. Then buyers step in, the shorts cover and price moves rather quickly to the $83 level.

The first quarter of every year is where fund managers make their numbers, so new money usually flows into asset classes during the first of the year. Under that scenario, WTI should move up and test the upper part of the range, and whether it can push through the $90 level will depend on whether inventories can come down, i.e., several weeks of drawdowns leading to months where we take 10 to 12 million barrels off the existing inventory levels in the 370 million area currently. We need to see at least 30 million barrels of drawdowns to move price back to the $95 a barrel level. Without this any rallies in WTI will be faded or sold into curtailing any sustained momentum from forming.

Related Article: The Tuscaloosa Marine Shale Play: Americas Latest Discovery

 
12 month oil trades

So oil for the next three months will be more of a Trader`s market and less of a trending market where traders have to take pieces of prices where they can, and avoid buying or selling the top and bottom of the market unless extreme circumstances present themselves. The trader can buy small technical price breakouts, but always be wary of being too committed to these breakouts, as we have seen by the last two months price quickly reverts back to the bulk of the trading range.

The successful CL trader will be nimble, watch their technical levels, and get in and out for the most part, with occasional mini trends to take advantage of from time to time. With abundant supply levels, volatility is definitely on the decline. Most of the volatility will probably stem from asset rebalancing, market dislocations in one asset class affecting other asset classes, and I expect more volatility to the downside than upside.

Real Down Side Pain

The stronger case for real pain, i.e., participants stepping away from the market or being surprised by the market, is to the down side, in my opinion. This could occur because of a major down grade of US debt, over supply issues, or Europe sinking further into recession than forecast.

Any break and close below the $78 level pushing down to the next level of support would cause major pain in the oil market as many models would be violated by this occurrence.

 


Once models are violated, all bets are off when it comes to commodities, and price seemingly goes farther than one would logically predict, i.e., it is too low to be going down further. This phenomenon causes buyers to step in trying to catch a falling knife, and their getting stopped out adds additional fuel to the downside move.  If everybody believes that $75 should hold, and it doesn`t, panic ensues from real pain in the market, buyers step away altogether, and price can go farther than you think to the downside.

Market Feel & Technical Analysis

WTI is a commodity, and commodities adhere more to technical analysis criterion than other asset classes, but technical analysis is not perfect or something that can be applied rigidly or religiously. It is just a tool to be used as a guide with other sources of information like fundamentals, market sentiment and mechanics, economic reports, consumer and investor trends, capital flows, geo-politics, OPEC decisions, maintenance and outages, natural disasters, and other inputs to the oil equation.

But most of all, technical analysis revolves around market feel for how to apply technical analysis, when it will be violated, when it is likely to hold, close enough levels, etc.  This ‘market feel’ is the most difficult skill to acquire in the quest of mastering oil markets.

A successful oil trader has to have a great feel for what the market is currently doing, and this serves as a solid base for what the market is likely to do next. The “feel” for how to apply technical analysis is the ‘art’ in the equation that overlays the ‘science’ of historical pricing patterns.

By. EconMatters




Back to homepage


Leave a comment

Leave a comment




Oilprice - The No. 1 Source for Oil & Energy News