Clearly, the crude oil market has bottomed out as what was once a short squeeze has now become a "war premium."
Fundamentally, October crude oil futures prices have rallied from a low on Aug. 24 of $37.75 per barrel to a high on Aug. 28 of $45.90 per barrel. That's about $8/barrel in a matter of 4 days. Whoo-wee, that's like a rocket shooting off of a launching pad. Bottom line is crude shot up lightening quick with warp like speed.
The cause of this move from a fundamental stand point doesn't make a lot of sense other than the "war premium" caused by the Saudi's attacking Yemen, which in and of itself should not effect oil production. However, the Saudi's don't attack anyone very often. On the other hand, the fundamentals are still very bearish in my view. Here in the United States we are sitting on or near record supplies of crude, not including the Strategic Petroleum Reserve (SPR). Then, in terms of production here in the United States, we are well above last year’s pace and the 10-year average.
Also, OPEC nations are pumping crude like it's going out of style. Everyone wants their market share of $35-$45/barrel crude oil it seems. I've read that OPEC can make money with $15/barrel pricing. I'm not sure if there is any truth to that, but I will say that I think this rapid rise in crude oil prices is shady and unsustainable. I say this because of the fundamentals, but then again when do these matter when the funds and "big money" start buying?
Technically, I have added my favorite technical indicators to the gold chart below. They are the 10- (red line), 20- (green line), and the 50- (blue line) period simple moving averages (SMA). I have also added Bollinger Bands (BB) (light blue shaded area) and Candlesticks (the red and green bars). On the daily chart below each bar or Candlestick represents one day of trading. I have coined this combination of my favorite technical indicators the 10/20/50/BB Trend Finder system. These few technical indicators tell me several different characteristics about the market at a quick glance.
On the daily chart below, the October crude oil market was in what I have coined a "Principal-Trend" down, which is the strongest from of a trend that the "10/20/50/BB Trend Finder" can show. However, this all changed when on Aug. 27 the market rallied significantly higher and closed above the first area of resistance on the chart, the 10-day SMA (red line). Then, showing tremendous follow through on the very next trading day Aug. 28 the market rallied up, through, and closed above the next area of resistance the 20-day SMA (green line).
Now it would appear that the next area of resistance according to my "10/20/50/BB Trend-Finder" strategy would be the top line of the BB's or Bollinger Bands at about $47/barrel. Then after that the 50-day SMA (blue line) at about $49/barrel could be the next and final area of resistance according to my "10/20/50/BB Trend-Finder" strategy. Although, I just don't see it happening especially right away. I believe we will see a pull back after things settle down with the Saudi's and on pure profit taking alone.
Remember, we just witnessed a major move higher in just a few days.
October crude, Daily
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