Oil price discussion and analysis

[luutzu]

I started charting the POO back in 2013 and called a huge fall after working out a swing chart calculation. The very long term as in years and years is minus US$10. This makes me think anyone holding large reserves in their back paddock is likely to have to pay around US$10 to be rid of the stuff. Now back to reality. My first chart back in May 2013 saw the POO at $95.17 it ultimately fell to $26.14 in February 2016 which was a near as dammit double bottom from December 2008 of $30.81.

Now I am putting up the same daily twelve year long term view of POO which is about to hit the long term overhead falling resistance line from 2008. The shorter term view which started at the time of the February 2016 double bottom is travelling within and almost at the top of a bearish Rising Wedge.
I believe in the very short term, days perhaps, the POO will start to fall and eventually hit the long term support line of $20 or just above. This will then be a triple bottom and should see a final dead cat bounce up to the falling resistance line.
I say all this because of what I see on the chart not through any other means, information or advice.

View attachment 89810

Wait, you're saying that oil could crash/correct down to the $20s? In days or months.. not in decades and such?

I think the break-even for most oilers is around $30? They have been either broke or starving the past few years...

So unless there's a quick and major alternative to oil and its derivatives, replacing most of the world's energy need. I just can't see how or why people would sell a vital resource for less than what it costs them to extract.

 

[ducati916]

I'm currently [again] interested in the oil price, but only indirectly as I hold AMZA. They are essentially pipelines, but the POO does have some relevance, just quantifying how much though is speculative.

As to the POO, there is a reduction in supply currently due to various political issues. What is the current shale price break even/profit?

On a chart basis [OMG] I'd say it could still go somewhat higher, $85+/-

jog on
duc

 

[Smurf1976]

So unless there's a quick and major alternative to oil and its derivatives, replacing most of the world's energy need. I just can't see how or why people would sell a vital resource for less than what it costs them to extract.

There’s a difference between total cost of extraction versus the (much lower) cost of just continuing production from wells already drilled.

My approach is fundamental not technical but if we are to see a major decline in the oil price then, from a fundamental perspective, that’s going to need a major shock of some sort.

Possibilities:

US (or someone else but most likely the US) floods the market by releasing oil held in storage.

The Saudi’s really do have quite a bit of spare capacity and decide to use it.

The real economy falls in a heap and demand declines.

Or some combination of the above. Eg Donald Trump orders the US Strategic Petroleum Reserve to be completely emptied as fast as possible and the OPEC countries respond by maximising production and making oil worth not much. That includes, by whatever means, Iran continuing to pump flat out.

That’s not to say I’m convinced by the notion of a price crash, it’s just considering how it could occur.

The other route would be purely via the actions of speculators and automated trading. A financial event with no physical origins as such. Possible......

 

[Ann]

Wait, you're saying that oil could crash/correct down to the $20s? In days or months.. not in decades and such?

G'day Luutzu, no it won't be days or months to get to the $20s, it may well be a year or two but not decades. I am thinking it may start falling or maybe doing a zig-zag toward all the resistance and support lines in the very short term. Any dramatic falls are unlikely to happen until it breaks below the rising support of the rising wedge which would be around $60. I can't see anything really dramatic until that stage. If it breaks through and has a dramatic fall let's remind ourselves how quickly it fell after dropping through support from $98.22 on July 31 2014 to a low of $26.14 on February 11 2016. I feel rightly or wrongly the start of a fall will happen in the shorter term as in days, perhaps. Then I said it would eventually (meaning a longer time) hit the long term support line of $20 or just above. Nothing on very long term charts is instantaneous it all takes months and years to evolve. I enjoy the very long term view of things, sort of looking at the whole forest to see the health of individual trees, so-to-speak.

However it may totally shock me and make me look a total tit and proceed to break up through the falling long term overhead resistance and head up to $100 to form a double top coming from June 2014 or even if we really want to go to the moon let's say it keeps heading up to try for a triple top of February 1980 and July 2008 and that would be about $140. It is all possible folks!

I believe in the very short term, days perhaps, the POO will start to fall and eventually hit the long term support line of $20 or just above. This will then be a triple bottom and should see a final dead cat bounce up to the falling resistance line.

 

[ducati916]

My approach is fundamental not technical but if we are to see a major decline in the oil price then, from a fundamental perspective, that’s going to need a major shock of some sort.

Agreed. Currently the trend higher looks to continue. I would say with a pretty high probability to the $85+/- level.

Of course, if as you say, some major supply comes into the market that could all change.

jog on
duc

 

[Ann]

On a chart basis [OMG] I'd say it could still go somewhat higher, $85+/-
jog on
duc

G'day duc, that is a very interesting chart with the COTs display. Purely on the fact that the COTs are contracting actually confirms a fall to me. Not sure what on the chart indicates a rise to $85+/- to you. What is it you see on the charts to make you bullish?

 

[CanOz]

Ahh, its all in the interpretation...

I can see a bullish case if this turns into a cup and handle, as it is its a rounded bottom and is typically bullish more often than not. BTW we just missed that VPOC by a few ticks....

Shorter term i see a nice bear flag in a channel that makes sense for context....

 

[Ann]

View attachment 89828 View attachment 89829 View attachment 89830 Ahh, its all in the interpretation...

I can see a bullish case if this turns into a cup and handle, as it is its a rounded bottom and is typically bullish more often than not.

G'day CanOz, I would be very disinclined to call a potential C+P with the kind of long term overhead falling resistance line this chart has. It is the unseen, long term resistance lines that can kill a good chart call. I speak from painful experience. That is why I began looking as far back as I possibly could just in case there was a poised sword ready to smash my cup to smithereens!

 

[Ann]

Brain fart...should have typed C+H not C+P!

 

[CanOz]

Yup, got you there....i agree there is now significant resistance...i don't believe though that it has seen a good retest yet....therefore i can see the channel continuing until at least the test of that resistance. Short term i'm still watching the the bear flag. Appreciate the points of view Anne.

 

[ducati916]

G'day duc, that is a very interesting chart with the COTs display. Purely on the fact that the COTs are contracting actually confirms a fall to me. Not sure what on the chart indicates a rise to $85+/- to you. What is it you see on the charts to make you bullish?

Nothing particular on the chart, rather in the COT data, which is why I posted it. It is the interplay of the commercial hedgers, the larger speculators, commodity index traders and of course the little chaps.

I'm not seeing an inflection point yet where the most important [commercial hedgers] are indicating that a trend break is imminent. So I would expect the trend to continue, in a random walk pattern, to that $85 area and then reconsider the analysis.

Of course, as Smurf indicated, a substantial change in supply or geopolitical issue could negate the current environment entirely, in which case, this analysis would need to change.

jog on
duc

 

[CanOz]

Bear flag triggered....

 

[luutzu]

There’s a difference between total cost of extraction versus the (much lower) cost of just continuing production from wells already drilled.

My approach is fundamental not technical but if we are to see a major decline in the oil price then, from a fundamental perspective, that’s going to need a major shock of some sort.

Possibilities:

US (or someone else but most likely the US) floods the market by releasing oil held in storage.

The Saudi’s really do have quite a bit of spare capacity and decide to use it.

The real economy falls in a heap and demand declines.

Or some combination of the above. Eg Donald Trump orders the US Strategic Petroleum Reserve to be completely emptied as fast as possible and the OPEC countries respond by maximising production and making oil worth not much. That includes, by whatever means, Iran continuing to pump flat out.

That’s not to say I’m convinced by the notion of a price crash, it’s just considering how it could occur.

The other route would be purely via the actions of speculators and automated trading. A financial event with no physical origins as such. Possible......

Just out on Reuters:
Exclusive: OPEC, allies struggle to fully deliver pledged oil output boost - internal document

LONDON (Reuters) - OPEC is struggling to add barrels to the market after agreeing in June to increase output, an internal document seen by Reuters showed, as an increase in Saudi Arabia was offset by declines in Iran, Venezuela and Angola...
https://www.reuters.com/article/us-...-output-boost-internal-document-idUSKCN1MT1G0

---

They have a similar article couple days back saying that there's no more extra, ready, capacity to increase supply without much needed investment in new field development etc.

The past few years of low prices have seen depletion in existing field. Where they tap, as you say, the more economical wells head nearby.

Judging by what the guys at OPEC and a couple engineering support companies presentation I read said, activities are, and needs to be, picked up else supply from existing operating fields cannot supply demand.. and not when Iran get sanctioned again in a couple weeks, knocking 2 to 3M barrels a day off the inventory?

----

No idea how much reserves the US has in its strategic tanks. But it did, for the first time since ever if I remember right, sold part of those reserves a couple years back though.

Read then that some of those reserves were not really high quality oil... I guess that's they sold it.

That and the station Venezuela is only a few clicks away, waiting to be liberated.

 

[Smurf1976]

There’s no real spare capacity to my understanding but it must be said that thus far the T/A approach is looking more likely than the fundamental one.

There’s approximately 650 million barrels in the US Strategic Petroleum Reserve. That’s one possible source of more supply.

Sanctions on Iran either not happening or not in practice affecting oil exports are another possible scenario.

That the Saudis or others release oil from above ground stockpiles is another.

Or is the real economy, as distinct from the financial markets, considerably weaker than is commonly thought? Lack of demand?

 

[Ann]

Reuters Monday October 22, 2018 11:00

Oil slips below $80 after Saudi pledges rapid output rise

https://www.kitco.com/news/2018-10-22/Oil-slips-below-80-after-Saudi-pledges-rapid-output-rise.html

The Article finishes by saying....

The outlook for demand next year, meanwhile, is deteriorating.

OPEC estimates demand for its crude will fall to an average of 31.8 million bpd next year, from an average 32.8 million bpd this year.

"The full impact of the U.S.-China trade war will hit markets in 2019 and could act as a considerable drag on oil demand next year," Emirates NBD bank said in a note.

 

[Smurf1976]

So we've got demand rising, US production running into bottlenecks with pipeline capacity, Saudi using up the last of the world's spare production capacity, collapsing production in Venezuela, an imminent disruption to exports from Iran and the price is going down.

The charts don't lie so far as the actual price drops so no argument there.

The Iran sanctions aren't really going to stop oil being exported in practice or someone's about to release significant oil from storage is my guess. Every other reasonable explanation, such as the economy falling in a heap, seems a bit premature at the very least.

Either that or this is just a pullback and after that it's up, up and up some more?

 

[$20shoes]

I started charting the POO back in 2013 and called a huge fall after working out a swing chart calculation. The very long term as in years and years is minus US$10. This makes me think anyone holding large reserves in their back paddock is likely to have to pay around US$10 to be rid of the stuff. Now back to reality. My first chart back in May 2013 saw the POO at $95.17 it ultimately fell to $26.14 in February 2016 which was a near as dammit double bottom from December 2008 of $30.81.

Now I am putting up the same daily twelve year long term view of POO which is about to hit the long term overhead falling resistance line from 2008. The shorter term view which started at the time of the February 2016 double bottom is travelling within and almost at the top of a bearish Rising Wedge.
I believe in the very short term, days perhaps, the POO will start to fall and eventually hit the long term support line of $20 or just above. This will then be a triple bottom and should see a final dead cat bounce up to the falling resistance line.
I say all this because of what I see on the chart not through any other means, information or advice.

View attachment 89810

Morning Ann. That's an interesting chart.
You could put an Elliott count on that has Supercycle Wave 1 at your 2008 high, and then a massive ABC correction ending Supercycle Wave 2 in Jan 2016. In which case, you could make an argument that POO is in now in Cycle wave 1 of Supercycle Wave 3 - so early stages of a bull market.

Because we are potentially in a Cycle Wave 1, we'd expect Cycle Wave 2 - when it occurs - to be deep and last for well over a year (perhaps many years?). This concurs with your analysis because the retracement could be up to 100%.

Before that though, and from an Elliott perspective, the current move up looks like it has some many months yet to complete its move up, and if the count is valid the broader move up should see POO get close to $100 (or perhaps exceed it slightly).

 

[Ann]

Morning Ann. That's an interesting chart.
You could put an Elliott count on that has Supercycle Wave 1 at your 2008 high, and then a massive ABC correction ending Supercycle Wave 2 in Jan 2016. In which case, you could make an argument that POO is in now in Cycle wave 1 of Supercycle Wave 3 - so early stages of a bull market.

Because we are potentially in a Cycle Wave 1, we'd expect Cycle Wave 2 - when it occurs - to be deep and last for well over a year (perhaps many years?). This concurs with your analysis because the retracement could be up to 100%.

Before that though, and from an Elliott perspective, the current move up looks like it has some many months yet to complete its move up, and if the count is valid the broader move up should see POO get close to $100 (or perhaps exceed it slightly).

G'day $20shoes, I find the Elliot Wave fascinating, over the years I have looked at it. A little while back I got a book by Frost and Prechter about the Elliot Wave Principle and read it through. For a while, using the historic Dow Jones chart, I was looking into the pattern and drawing it. I really wasn't fully grasping it until Porper and a few other EW experts offered their advice. I sort of got it at that stage but for some reason it never stuck in my brain. I guess my brain's eye just can't see it. I tend to go into a kind of trance when I chart and just see what I see but never intellectualize. So I stick to my simple shapes which I can see, draw them and share my thoughts. However I always enjoy looking at the Elliot Wave charts drawn up by people who can see it and translate it onto a chart.

I am not sure I agree with you about any further moves upward. I am just about to upload a chart for the ASX 200 XEJ Energy Index in the ASX Stock Chat Forum shortly. It simply confirms what the POO is telling me. Of course miracles happen and I may be wrong!

 

[$20shoes]

G'day $20shoes, I find the Elliot Wave fascinating, over the years I have looked at it. A little while back I got a book by Frost and Prechter about the Elliot Wave Principle and read it through. For a while, using the historic Dow Jones chart, I was looking into the pattern and drawing it. I really wasn't fully grasping it until Porper and a few other EW experts offered their advice. I sort of got it at that stage but for some reason it never stuck in my brain. I guess my brain's eye just can't see it. I tend to go into a kind of trance when I chart and just see what I see but never intellectualize. So I stick to my simple shapes which I can see, draw them and share my thoughts. However I always enjoy looking at the Elliot Wave charts drawn up by people who can see it and translate it onto a chart.

I am not sure I agree with you about any further moves upward. I am just about to upload a chart for the ASX 200 XEJ Energy Index in the ASX Stock Chat Forum shortly. It simply confirms what the POO is telling me. Of course miracles happen and I may be wrong!

Thanks Ann. I only have my "L" plates when it come to Elliott waves so take my count as a consideration only. Would like to see your take on the XEJ too. Thanks

 

[Smurf1976]

if the count is valid the broader move up should see POO get close to $100 (or perhaps exceed it slightly).

Is that referring to Brent or WTI?

From a fundamental perspective, one issue is that much of the recent supply growth has taken place in the US and that is reaching the limits of infrastructure. In simple terms, there's a lack of pipeline capacity to move the oil from where it comes out of the ground to anywhere that can refine, export or otherwise use it and alternative means of transport, eg road tankers, are expensive and of limited scale.

So it's not just oil per se but where it is located is becoming a definite issue at the moment which is affecting prices.