Energy & Commodities

Oil Prices and Equities Guide to Trading

Posted by Andrew McGuire - Agility Forex

on Sunday, 13 September 2015 9:35

USDCAD Range 1.3219-1.3272

This morning US PPI data failed to have an impact in currency trading. G-10 currencies are content to meander within the confines of yesterday’s ranges while traders kept an eye on equities. US equities are drifting lower, in line with a similar move in Asia and Europe.

FX markets are ending an interesting week on a dull note. Singapore was closed for elections which sucked a ton of liquidity out of markets while a lack of top tier data and quiet politicians did the rest. A fresh report from Goldman Sachs painted a fairly bleak outlook for oil prices which contributed to a small dip in WTI.

USDCAD was sidelined in Asia and a rally in Europe was short-lived. The Canadian dollar outlook remains married to WTI prices and the prevailing sentiment for the US dollar. Wednesday’s Bank of Canada statement was fairly positive except for the references to China risks and comments about how a weak currency has helped the economy. Perhaps the thinking is if USDCAD at 1.3300 is boosting economic growth, then at 1.4500 rate it would turbo-charge the economy.

Technical Outlook

USDCAD continues to chop around within a 1.3160-1.3320 range but unable to generate enough momentum to extend gains or losses. The underlying sentiment is bullish for a test of 1.3450. For today, USD support is at 1.3210 and 1.3160. Resistance is at 1.3270 and 1.3320

Today’s Range 1.3210-1.3290

Chart: USDCAD 4 hour with uptrend Larger Chart

The Decline of Oil: Head-Fake or New Normal?

Posted by Of Two Minds

on Thursday, 10 September 2015 14:08

When production does finally collapse, that will set up the “nobody saw this coming” ramp in the price of oil.

In May 2008 I proposed the Oil “Head-Fake” Scenario in which global recession pushes oil demand down as oil exporters pump their maximum production in a futile attempt to fund their vast welfare states and thus retain their precarious political power.

Oil: One Last Head-Fake? (May 9, 2008)

The terrible irony of the head-fake, of course, is that the exporters’ efforts to pump more oil exacerbates the oversupply, further depressing prices.

…..continue reading HERE

Crude Oil, Silver, Gold and Real Money

Posted by Gary Christenson - The Deviant Investor

on Wednesday, 9 September 2015 16:42

I’m not convinced!

Supposedly crude oil prices will stay low for a long time and perhaps drop into the $20’s. The Internet is filled with reasons explaining why crude oil prices will drop. A few are:
Saudi Arabia is a swing producer and will provide what the world needs, regardless of price, because Saudi Arabia needs the revenue and employment for its people.
Iranian oil will soon hit the market and provide even more supply.
The global economic slow-down will reduce demand and prices for crude oil.
US shale oil production will remain high because those producers desperately need the revenue for debt service. They will pump all they can and maintain supply.
US foreign policy wants low oil prices to damage the economies of Russia and Iran. Supposedly there was a deal made with the Saudi government.
Renewable energy will reduce demand for crude oil.
US dollar strength will push oil prices lower.
And many more.

I’m not convinced

Lower oil prices may be helpful at the gasoline pump but they are deflationary, and central banks absolutely do NOT want deflation. Central banks may not be able to drive oil prices higher directly, but they certainly can drive the value of currencies lower. They have for over 100 years, so don’t expect them to reverse policy now.
The world needs energy, lots of energy and more every day. Crude oil is an important supplier of the energy required to run modern transportation and economies.
These low prices will not last, in my opinion. They never have. Further, low prices will bankrupt a number of oil companies, shale companies, and reduce supply. As they say, “the cure for low prices is low prices.”
At every market bottom one will hear a dozen reasons why prices will go even lower and cannot go higher. Those reasons are often wrong.
At every market top one will hear a dozen reasons why prices will continue even higher and, except for tiny corrections, cannot go lower. Markets always correct, sometimes harshly.

WHAT ABOUT RELEVANT RATIOS?

Examine the following Crude Oil to Silver ratio (crude oil priced in real silver)for the past 30 years. Yes, the ratio can drop further, but based on 30 years, it is currently quite low. The most likely next move is a higher ratio.

Examine the following Crude Oil to Gold ratio (crude oil priced in real gold) for the past 30 years. Yes, the ratio can drop further, but based on 30 years, it is currently quite low. The most likely next move is a higher ratio.

Examine the following 20 year chart of crude oil prices. Note the blue vertical lines that occur every 83 months – about every 7 years. The last two important lows were late 2001 and late 2008. A similar low appears to be occurring now, about August or September 2015.

There is no guarantee that a 7 year cycle will mark a bottom in the crude oil market now or soon. But don’t ignore the possibility.

Other reasons to expect a bottom in crude oil:

The ratios to silver and gold (above) indicate that crude oil, when priced in real money such as gold and silver, are near 30 year lows.
The technical indicators (green ovals) suggest that monthly crude oil prices are oversold and ready to turn up.
The world is pushing toward more war. Higher crude oil prices and war go together.
Central banks want inflation. They are likely to get it, and more than they want. Crude oil prices will rise as currencies devalue.

CONCLUSION: I’m not convinced that crude oil prices will drop much from here or remain low for many more months. Regardless of the “reasons” listed at the beginning of this article, I think higher crude oil prices are much more likely than lower prices in six months or less.

Gary Christenson

The Deviant Investor

The Default Next Move For Oil Is Downwards, And Here’s Why

Posted by OilPrice.com

on Tuesday, 8 September 2015 13:10

As traders, investors and pundits, we all like to think that what we do is akin to a science. We believe that by working harder and being smarter we can give ourselves an edge, that enough research will reveal to us the next move, either a long term trend or an intraday blip on a chart, and that we can profit from that knowledge. Usually, especially over longer time spans, we are correct in that assumption. Sometimes, however, no amount of fundamental or technical analysis will help.

Over the last week or so we have seen some violent swings in the price of oil, swings that in many ways defy logic. At times like these we have to rely on the art, rather than science, of trading and reading markets. That is not to say that traders and investors at home should be simply making wild guesses, it is just that right now, the oil markets are trading on factors other than the fundamental influences that we are used to. It is hard to chart fear and panic.

Panic may seem like a strong word to many, but having been a denizen of a dealing room for most of my working life I can assure you that that is what many have been feeling. The level of overreaction that we have been seeing to every scrap of news over the last couple of weeks is hard to justify in any other way. It is at times like this that some degree of basic technical analysis, a simple identification of support and resistance, becomes all we have to fall back on. To that extent the science of reading these markets is still intact, but once the significant levels have been identified, assessing in what way they are significant is more of an art.

In terms of the benchmark U.S. oil, West Texas Intermediate (WTI), at least now we have some parameters to work in. The drop halted at around $37 and the surge back up that followed itself turned around at just below $50, so, for now at least, that marks the new range. If we accept that, then anybody with even the most basic knowledge of trading will know that, at current levels in the high $40s, a bias towards a short position offers a better risk reward ratio with a closer, logical stop loss level. There are, moreover, a few more subtle, psychological factors amongst market participants that make it most likely that the next move will be downwards and therefore that a short bias is preferable to long.

First and foremost, once new, significant levels have been found, re-testing them is almost irresistible to traders and, in historic terms, the lows of the current range are much more significant than the highs. That traders want to see what happens if they get to a seemingly arbitrary level again may seem like a ridiculous reason for a market that affects the livelihood of millions and the wealth of many nations to move, but such concerns won’t bother floor traders or hedge fund managers. For them, pushing back below $40 is more of an intellectual exercise than anything and if it can be forced there and the level breaks, large fortunes can be made.

Of course, all of this goes out of the window if there is a significant shift in fundamentals, either on the demand or supply side. If decent Chinese economic data is released, for example, or if OPEC announces real production cuts, or if the U.S. rig count drops drastically, then traders’ games won’t matter at all, oil will be headed higher. Until there is any major news, though, it is a question of anticipating what that news will be, or rather the tone of it. Given what has happened since the middle of last year you cannot blame traders for making the assumption that, on balance, any news is more likely to be negative for oil than positive.

It seems, therefore, that all other things being equal, the default path for WTI in the short term is back downwards, to have another crack at the high $30s. There is no real fundamental reason why that should be the case. If anything recent data suggest that when all is said and done, oil trading below where it was in the depths of the last recession is not justified. A recovery at least to around $60 must come soon. Fundamental, scientific analysis like that doesn’t matter at the moment though; what matters is the art of reading the collective mind of the market, and from that perspective oil looks destined for one more push down before sanity returns.

Martin has recently started a mentorship program for a small group of motivated subscribers, find out more here.

By Martin Tillier of Oilprice.com

Do crude fundamentals justify the rally?

Posted by Phil Flynn - The PRICE Futures Group

on Friday, 4 September 2015 15:34

Crude oil shorts are shocked as oil prices keep rallying. Massive capital spending cuts in the energy space as well as a refinery strike is giving oil and oil products a boost. While many continue to say that the fundamentals don’t justify the rally, the truth is these are the same folks who were shocked when oil went so low in the first place. The perception of what is a fair price for oil changes quickly as a futures market looks ahead from what is to what will probably be.

Oil products led the way as the first major refinery strike since the 1980’s caused market concerns. The strike by United Steel Workers union impacted about 10% of U.S. refining capacity. Even as many argued that output so far at the refineries not been impacted, wholesalers and jobbers bid up spot prices just in case.

Genscape, the respected company that monitors energy industry and refining activity, reported yesterday that in the second day of strike by the United Steel Workers union at seven U.S. refineries and two other petrochemical and co-generation facilities has had little effect on operations. Genscape admitted that the strike pushed refined products prices higher today from concerns that production may be impacted. Genscape, which monitors approximately 58% of the refining capacity where strikes are taking place, said so far, no operational changes have been observed.

Screen Shot 2015-02-03 at 9.42.47 AM

Even so, oil products continue to rally as many are not certain if the refineries over the long run can maintain output. Some refineries are going to shut down for maintenance early as the strike is giving them the excuse they need. The other concern is that the strike may spread to other refineries and other industries as well. The strike is entering its third day with no end in sight.

We called a bottom at $44 on oil and it looks like it will hold up. With the technical looking strong and wounded shorts we still have the capacity to surprise on the upside. While the front end of the curve seems well supplied the demand to buy oil to put into storage has offered some support. With storage filling rapidly that could weigh on prices later but for now you can’t get in the way.

The International Energy Agency last week warned that supply would tighten later this year and we could see a 350,000 barrel drop in non-OPEC supply. That is a number that could grow if the rig and capital spending cuts keep coming, not to mention more shale bankruptcy possibilities.

About the Author

Senior energy analyst at The PRICE Futures Group and a Fox Business Network contributor. He is one of the world’s leading market analysts, providing individual investors, professional traders, and institutions with up-to-the-minute investment and risk management insight into global petroleum, gasoline, and energy markets. His precise and timely forecasts have come to be in great demand by industry and media worldwide and his impressive career goes back almost three decades, gaining attention with his market calls and energetic personality as writer of The Energy Report. You can contact Phil by phone at (888) 264-5665 or by email at pflynn@pricegroup.com. Learn even more on our website at www.pricegroup.com.

Futures and options trading involves substantial risk of loss and may not be suitable for everyone. The information presented by The PRICE Futures Group is from sources believed to be reliable and all information reported is subject to change without notice.

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