Nymex Light Crude continues its sharp descent, with August 2015 futures falling below $55 per barrel. Respect of $53 would indicate the (secondary) up-trend is intact, but breach would warn of a test of primary support at $44.
Crude dives below $58
Nymex Light Crude closed below support at $58 per barrel, signaling retracement to test medium-term support at $53. Respect of $53 would suggest an advance to $68/barrel, while failure would warn of a test of primary support at $44.
June 2020 futures broke support, at $70/barrel, suggesting a test of $50/barrel*.
* Target calculation: 70 – ( 90 – 70 ) = 50
Global economy: No surprises
The global economy faces deflationary pressures as the vast credit expansion of the last 4 decades comes to an end.
Commodity prices test their 2009 lows. Breach of support at 100 on the Dow Jones UBS Commodity Index would warn of further price falls.
The dramatic fall in bulk commodity prices confirms the end of China’s massive infrastructure boom.
Crude oil, through a combination of increased production and slack demand has fallen to around $60/barrel.
Falling prices have had a sharp impact on global Resources and Energy stocks….
But in the longer term, will act as a stimulus to the global economy. Already we can see an up-turn in the Harpex index of container vessel shipping rates, signaling an increase in international trade in finished goods.
The latest OECD export statistics show who the likely beneficiaries will be. Primary producers like Brazil and Russia have suffered the most, while finished goods manufacturers like China and the European Union display growth in exports. The US experienced a drop in the first quarter of 2015, but should rebound provided the Dollar does not strengthen further.
Australia and Japan offer a similar contrast.
Oil-rich Norway (-5.8%,-13.3%) has also been hard hit. Primary producers are only likely to recover much later in the economic cycle.
Crude: Where next?
Nymex Light Crude plotted against CPI gives an historical perspective on current crude prices: high prior to China’s entry into the global energy market, but low relative to prices since then. Expect strong support at the 2008 low.
Has fracking permanently suppressed oil prices, or will production dwindle over time in response to lower prices? Oil well efficiency is rising as marginal wells are mothballed.
Chart: Rising oil well efficiency in the US – pic.twitter.com/5w54OqyxKJ
— SoberLook.com (@SoberLook) June 15, 2015
Production forecasts are rising.
US shale still refuses to buckle. Not sure OPEC really winning here. From Deutsche Bank's latest pic.twitter.com/Z7wHxv3yrl
— A Evans-Pritchard (@AmbroseEP) June 16, 2015
Causing oil futures to fall. June 2020 Light Crude broke support at $70/barrel, offering a target of $55/barrel.
* Target calculation: 70 – ( 85 – 70 ) = 55
Spot prices (Nymex Light Crude) continue to range between $58 and $61 per barrel. Reversal below $58 would signal retracement to test medium-term support at $54. Breakout above $61 is unlikely at present, but would signal a rally to $68/barrel.
Crude retraces
Nymex Light Crude encountered solid resistance at $60/$61 per barrel. Reversal below $58 would signal retracement to test the new support level at $54. Respect would indicate an up-trend, while failure of $54 would test primary support at $44. Brent Crude [green] is already retracing and likely to test support at $54.
Crude finds resistance at $60/barrel
Nymex light crude encountered resistance at $60/barrel. Expect retracement to test the new support level at $54/barrel. Respect would indicate a primary advance, while failure would suggest recent gains are no more than a bear market rally and another test of $44 is likely. 13-Week Twiggs Momentum below zero continues to reflect a primary down-trend.
Crude: Reversal or bear rally?
Inflation-adjusted crude oil prices are close to their 2008 low, but if we look back to the 1980s and 1990s, prior to China’s entry into the markets (apart from a brief spike in September 1990) that was the 20-year high.
Nymex light crude rallied since breaking resistance at $54/barrel, but this does not necessarily indicate a reversal. Only retracement that respects the new support level (at $54) would confirm this a primary up-trend rather than a bear market rally.
Crude breakout: exercise caution
Nymex Light Crude broke resistance at $55/barrel, signaling the end of the narrow consolidation of the past few months. Some have heralded this as the end of the bear trend and start of a bull market.
If we examine the recent consolidation — shown here on June 2015 Light Crude futures — it is clear that it is broadening, with the second trough below the first, rather than rectangular. Peaks are likely to follow a similar pattern; so a higher peak does not necessarily mean a breakout. Broadening wedges tend to be unreliable reversal signals and I would wait for retracement that respects the new support level at $55 to confirm the breakout.
The state of crude
Crude is consolidating in a narrow band between $44 and $55/barrel. Supply continues to exceed demand and storage facilities are approaching capacity. The bear trend is expected to continue. Failure of support at $44/barrel would confirm.
Crude consolidates
Saudi Arabia bombs its neighbor Yemen. Another war in the Middle East and crude prices rally. Nymex Light Crude retreated above support at $45/barrel, testing $50, while Brent Crude found support at $54. The Saudis are obviously concerned about the success of Iranian-backed rebels in their close neighbor and are prepared to intervene militarily (Putin will probably send a telegram of support, attempting to draw a parallel although the situation in Ukraine is vastly different). Expect further consolidation between $45 and $55 for Nymex Light Crude. Supply continues to exceed demand and storage facilities are approaching capacity. The bear trend is likely to continue despite the current interruption.
