Tag: Nymex Light Crude

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Cold wind blows for crude oil producers

Long-term June 2017 Nymex Light Crude futures (CLM2017) broke support at $60/barrel, offering a target of $54/barrel*.

Nymex WTI Light Crude June 2017 Futures

* Target calculation: 60 – ( 66 – 60 ) = 54

In the short-term, September 2015 futures (CLU15) are testing support at their March low of $50/barrel. Breach is likely, given the long-term down-trend, and would offer a target of $40/barrel*.

Nymex Light Crude September 2015 Futures CLU15

* Target calculation: 50 – ( 60 – 50 ) = 40

Declining prices will hurt the Energy sector in the short/medium-term, but the benefit to the broader economy will outweigh this in the longer term. Lower fuel prices will especially benefit the Transport sector. Highly industrialized exporters like Germany, Japan, China and the broader EU, will also benefit. While oil exporters like Russia, Iran, the Middle East, Nigeria, Angola, Venezuela, and to a lesser extent Norway, face hard times ahead.

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Crude oil: A zero-sum game?

“The current fall in price does nothing to offset the squeeze on the total economy from rising costs,” Grantham writes. “It merely transfers massive amounts of income from one subgroup (oil producers) to another (oil consumers), in a largely zero-sum game….”[Business Insider]

The above quote from Jeremy Grantham made me do a double-take. His “largely zero-sum game” refers to the global playing field. Oil producers such as the Saudis, Russia, Venezuela, Nigeria and Iran will earn less per barrel, while oil consumers like China and the EU will gain an equivalent amount per barrel. More importantly, oil consumers will receive a substantial boost to their economies. The “zero-sum game” assumes that crude production will remain constant. But consumption is likely to rise significantly as plunging oil prices deliver more disposable income to consumers, providing a massive stimulus to local economies. That in turn will lead to increased production of crude oil. A win-win for producers and consumers.

The Nymex Light Crude monthly chart shows a breach of long-term support at $75/barrel. Brent crude is in a similar down-trend. Target for the (WTI) decline is $40/barrel*.

Nymex Crude

* Target calculation: 75 – ( 110 – 75 ) = 40

Plunging prices may slow the establishment of new wells, but existing wells are likely to continue pumping as long as the price per barrel of crude is higher than the marginal cost. Marginal costs ignore sunk (or fixed) costs like exploration and establishing a new well. They are merely the variable costs that would be saved — like wages and consumables — if production is halted. Marginal costs are far lower than the producers’ total cost and are not yet threatened.

As for the long-term viability of producers at lower prices, the following chart is worth repeating. Prior to the 2005 “China boom”, the ratio of crude prices to CPI oscillated between 0.1 and 0.2. Over the last few years it has soared to between 0.4 and 0.6. A fall back to 0.2 would harm new, marginal producers (i.e. US fracking) but should not affect core producers. Whether governments reliant on “oil-welfare” — like Russia, Iran and Venezuela — are sustainable is an entirely different matter.

Nymex Crude

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Crude oil: A zero-sum game?

“The current fall in price does nothing to offset the squeeze on the total economy from rising costs,” Grantham writes. “It merely transfers massive amounts of income from one subgroup (oil producers) to another (oil consumers), in a largely zero-sum game….”[Business Insider]

The above quote from Jeremy Grantham made me do a double-take. His “largely zero-sum game” refers to the global playing field. Oil producers such as the Saudis, Russia, Venezuela, Nigeria and Iran will earn less per barrel, while oil consumers like China and the EU will gain an equivalent amount per barrel. More importantly, oil consumers will receive a substantial boost to their economies. The “zero-sum game” assumes that crude production will remain constant. But consumption is likely to rise significantly as plunging oil prices deliver more savings to consumers, providing a massive stimulus to local economies. That in turn will lead to increased production of crude oil. A win-win for producers and consumers.

The Nymex Light Crude monthly chart shows a breach of long-term support at $75/barrel. Brent crude is in a similar down-trend. Target for the (WTI) decline is $40/barrel*.

Nymex Crude

* Target calculation: 75 – ( 110 – 75 ) = 40

Plunging prices may slow the establishment of new wells, but existing wells are likely to continue pumping as long as the price per barrel of crude is higher than the marginal cost. Marginal costs ignore sunk (or fixed) costs like exploration and establishing a new well. They are merely the variable costs that would be saved — like wages and consumables — if production is halted. Marginal costs are far lower than the producers’ total cost and are not yet threatened.

As for the long-term viability of producers at lower prices, the following chart is worth repeating. Prior to the 2005 “China boom”, the ratio of crude prices to CPI oscillated between 0.1 and 0.2. Over the last few years it has soared to between 0.4 and 0.6. A fall back to 0.2 would harm new, marginal producers (i.e. US fracking) but should not affect core producers. Whether governments reliant on “oil-welfare” — like Russia, Iran and Venezuela — are sustainable is an entirely different matter.

Nymex Crude

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Gold breaks key support level

A monthly chart of Gold shows the breach of support at $1200/ounce, offering a long-term target of $1000*. Another 13-week Twiggs Momentum peak below zero strengthens the signal. Retracement that respects the new resistance level at $1200 would confirm. Recovery above 1200 is unlikely.

Spot Gold

* Target calculation: 1200 – ( 1400 – 1200 ) = 1000

Crude Oil

Crude is also falling — in response to the rising Dollar as well as expanding supply. The long-term target for Brent crude is $60*.

Brent Crude

* Target calculation: 90 – ( 120 – 90 ) = 60

…And $50/barrel for Nymex Light Crude. Follow-through below $75 would confirm the down-trend.

Nymex Crude

* Target calculation: 80 – ( 110 – 80 ) = 50

Commodities

Copper is below its 2011 low of $6800/tonne, reflecting weak demand from China. Follow-through below $6600 would confirm a primary down-trend.

Copper

Dow Jones UBS Commodity Index has already broken support at 125, suggesting a test of its 2009 low at 100.

Dow Jones UBS Commodity Index

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Market lifts despite weak global economy

Minutes of the September FOMC meeting highlight growing unease with the strong US Dollar and a weak global economy. The market read this as “low interest rates” and commenced a buying spree. Last year the quarter-end sell-off ended on October 9th after a 4.2% fall. This year’s correction fell 4.7%, lasting 13 days (so far) compared to 15 days in 2013.

Roberto Dominguez at NY Daily News reports:

“The start of earnings season, with companies including Costco and Alcoa reporting quarterly profits that beat forecasts, also helped push the S&P 500 to its biggest rally in a year.”

While Cullen Roche writes that the US fiscal deficit is shrinking:

“…tax receipts have surged by 7.7% year over year and are up 48% over the last 5 years. And while some of this is due to tax increases the vast majority is due to a healing private sector.”

Bellwether transport stock Fedex continues its primary up-trend, signaling improved economic activity.

Fedex

No doubt boosted by a falling outlook for crude oil.

Nymex and Brent Crude

With positive news about, we should be careful not to forget the Fed’s concern with a weak global economy. While this may drive oil prices even lower, the impact on international sales of major exporters will be closely watched.

S&P 500 recovery above 2000 would indicate the correction is over, while follow-through above 2020 would signal another advance. A 21-day Twiggs Money Flow trough above zero would signal a healthy up-trend. Reversal below 1925 is unlikely, but would test primary support at 1900/1910.

S&P 500

* Target calculation: 2000 + ( 2000 – 1900 ) = 2100

CBOE Volatility Index (VIX) retreated to 15%, indicating low volatility typical of a bull market.

VIX Index

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Crude and commodities weaken

Crude oil prices are falling. Nymex Light Crude broke support at $98/barrel, signaling a test of primary support at $92/barrel, while Brent Crude is testing primary support at $104. Retreat of 13-week Twiggs Momentum below zero already warns of a Nymex (CL) down-trend.

Nymex WTI Crude

Commodity prices are being dragged down, with Dow Jones-UBS Commodity Index heading for a test of primary support at 122. Reversal of 13-week Twiggs Momentum below zero strengthens the bear signal.

Dow Jones UBS Commodities Index

Copper prices are also testing primary support, reflecting a weak Chinese economy. Breach of $6800/tonne would warn of a primary decline. Follow-through below $6400/tonne would confirm.

Copper

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Falling crude prices are good news

Crude oil prices are falling sharply. Nymex Light Crude broke support at $98/barrel and Brent Crude is testing support at $104. Breach of that support level would confirm a primary down-trend.

Nymex WTI Crude

The theory has been bandied about that lower crude prices are a Barack Obama strategy to deter Vladimir Putin in East Ukraine. But there are signs of an economic slow-down in Europe, especially Italy, that would hurt demand for Brent Crude. And the Baltic Dry Index, which reflects bulk commodity shipping rates, indicates global trade is at a low ebb. Whichever is correct, low crude prices are welcome — good for the medium-term outlook of the global economy.

Baltic Dry Index

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What caused the Dow sell-off?

Dow Jones Industrial Average fell 1.88% to close at 16563, breach of 16750 warning of a secondary correction. Decline of 21-day Twiggs Money Flow below zero would strengthen the signal. Breach of primary support at 15500 is unlikely and the trend remains upward.

Dow Jones Industrial Average

* Target calculation: 16500 + ( 16500 – 15500 ) = 17500

The S&P 500 also fell sharply. Reversal below 1950 warns of a test of medium-term support at 1900. Breach of primary support at 1750 again appears unlikely.

S&P 500

* Target calculation: 1500 + ( 1500 – 750 ) = 2250

The CBOE Volatility Index (VIX) spiked up, but remains below 20 — values normally associated with a bull market.

VIX Index

What caused the sell-off? Commentators seem puzzled. Theories advanced vary from Argentinian default to developments in Eastern Europe. Neither of these seem to hold much water: the market has been aware of the risks for some time and they should be largely discounted in current prices. My own preferred theory is the expectation of a rate rise from the Fed. With good GDP numbers and falling unemployment the Fed may be tempted to tighten a lot sooner than originally expected. Even oil prices are falling. High crude prices is one of the reasons for the cautious Fed taper so far.

Nymex Light and Brent Crude

Which makes me suspect that this correction is going to end like the last “taper tantrum” — with a strong rally when the market realizes that economic recovery will lift earnings.

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Crude and commodities rising

Nymex Light Crude is headed for a test of resistance at $105/barrel*. Recovery of 13-week Momentum above zero indicates a primary up-trend. Breakout above $105 would confirm, offering a target of $112*. Brent crude, however, continues to range between $104 and $112/barrel.

Brent Crude and Nymex Crude

* Target calculation: 105 + ( 105 – 98 ) = 112

The Dow Jones-UBS Commodity Index respected its new support level at 134, confirming a primary up-trend. The signal reinforces earlier recovery of 13-week Twiggs Momentum above zero. Target for the advance is 143. Reversal below 134 is now unlikely, but would warn of a bull trap.

Dow Jones UBS Commodities Index

* Target calculation: 134 + ( 134 – 125 ) = 143

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Light crude finds support

Nymex Light Crude found support at $92/barrel. Penetration of the descending trendline would suggest trend weakness, while respect would signal another test of primary support at $92/barrel. Breach of primary support would offer a target of $84/barrel*. Recovery above $100 is unlikely and another 13-week Twiggs Momentum peak below zero would indicate a strong down-trend. Brent crude continues to drift sideways, reflecting global supply constraints; breach of $104 would warn of a down-trend.

Brent Crude and Nymex Crude

* Target calculation: 92 – ( 100 – 92 ) = 84

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