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10/7/2017: Crude Oil Observations and Possibilities

A tight coil has developed in crude oil, with price trading primarily between 51 and 42 since June 2016.  A tight coil (range) indicates high potential energy and the possibility of a strong directional move (trend).  Objectively, the extent of the current range is indicated by the low 52 week Bollinger Band ® width reading.  Acknowledging that crude is coiled tells us nothing about the direction or timing of the next directional move but my ‘guess’ is that price will eventually resolve to the upside and perhaps when seasonal tendencies turn positive in January.  My longer term positive outlook is based on the positive working slope, defined by the 1984-2001 trendline.  Parallels to the line have identified major inflection points for the last 3 decades, most recently in August 2016, November 2016, and June (blue lines).

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It’s not difficult to envision a scenario in which crude drops to support (blue lines…roughly 40.75 and 43.40) again in order to destroy sentiment one final time before a ‘real’ advance is allowed with the first stop near 65 in early Q2 of 2018 (again…in line with seasonal tendencies).  Tactically, the August 2016 low at 39.19 serves as the bullish invalidation level.  Weakness below that price would trigger a breakdown towards the lower parallel near 29.  While not ‘preferred’, this latter scenario must be acknowledged.  Secondary evidence, such as The Economist cover from August (the death of the internal combustion engine – magazine covers as indications of sentiment extremes are well documented – XLE rallied almost 9% in September by the way), and Andy Hall shuttering his main hedge fund at Astenbeck Capital Management indicate depressed sentiment that’s typical during a price bottoming process.

Crude Oil Weekly

The Economist: 8/12/2017

Interesting Visual from 2015 at BarrelPerDay

 

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