About Me

Retired chief investment officer and former NYSE firm partner with 40 years experience in field as analyst / economist, portfolio manager / trader, and CIO who has superb track record with multi $billion equities and fixed income portfolios. Advanced degrees, CFA. Having done much professional writing as a young guy, I now have a cryptic style. 40 years down on and around The Street confirms: CAVEAT EMPTOR IN SPADES !!!

Sunday, November 30, 2014

Oil Price

Technical
WTI crude broke a nice five year uptrend featuring an $18 bl. price range in Jun. A fast and
deep downside breakaway has taken place since which knocked out supports at $80 and $70
and which currently leaves the market a little above long term support running back to 1999
and which now stands at $60 bl. The current speedy bear market is typical of a substantial
oil price decline and, in the modern era, such declines usually do not reverse quickly with
fast carry to new highs.

A break in long term support below $60 certainly cannot be discounted. If this occurs and
the market extends trading below the long term support line, it would raise the question of
whether there is a new ball game afoot for industry fortunes.

The market is deeply oversold. With WTI crude now trading at more than a 30% discount to
its 40 wk m/a, it will have the attention of short term traders looking for a positive bounce.
Note also the hefty oversolds now being registered by RSI and MACD. $WTIC Weekly

The oil price tends to trend strongly up or down. Thus, when a reversal of trend arrives,
trading it can be done with surprisingly little risk over the intermediate term. In short, it
is not worth the effort to try and catch tops or bottoms but is worth the effort to trade
when there is evidence of a trend reversal.

The oil price does tend to enjoy a seasonal bounce which begins in mid - Dec. and whch
runs into early Jan. Continuation of the current strong downtrend right through Dec. would
veer toward the ominous.

Wealth & Liquidity Transfer
Excess production is now a relatively modest 500K Bd. However, with fast rising US output
and modest demand growth, the oil gurus have the rate of excess global output rising to 1.5
million Bd. by year's end 2015. It is this longer range view of supply / demand that has the
market so worried. Should oversupply widen out as many now expect, there could well be
a huge wealth and liquidity transfer of up to 1.3 $trillion from net producers of oil to net
consumers over the next year. Such a grand transfer would lead to some major changes in
fortune for a range of countries on either side  of the production / consumption divide, and
might spur unrest and geopolitical bad behavior among countries least able to lose the petro -
dollars. As for oil companies, remember that the lever on the way up is the screw on the way
down.

Strategy
When you reach my age of 75, you will find you have to obtain a Papal Dispensation to short
markets. So, any interest I have in oil would be on the long side. On this issue, I plan to
see if still large oil futures positions by financial speculators need to be wrung out and to wait
for indications of a trend reversal.


  


1 comment:

Kidz said...

Such a very useful article. Very interesting to read this article.I would like to thank you for the efforts you had made for writing this awesome article.
slither io | wings io | science kombat | tank trouble 4