Crude oil is another of the commodities I expect to perform well this year, and for the last few weeks I have been waiting for a break above the short term resistance at $92.20 per barrel for the WTI market, which was finally breached last week in dramatic style, helped of course by the news in Libya and Egypt. The most dramatic chart is that for the week, with the WTI spot price ending the trading session with a wide spread up candle, and closing on Friday at $98.43 per barrel, having initially pushed through the psychological $100 per barrel earlier in the week.
As such, this is now a significant price move, and following several weeks of sideways price action in the $87 to $92 per barrel area, we now look set for an extended bullish run for the commodity, something I have been forecasting since late last year. Indeed I suggested in a post in November that we should expect to see crude oil break above $100 per barrel in the first quarter of 2011, before moving towards $127 per barrel and beyond in due course.
The technical picture for oil is now extremely bullish, and although we may see a short term pullback early in the week, I expect to see crude oil develop a longer term trend higher for much of 2011, and should the current tensions in the Middle East continue to escalate, then a breach of the $147 high of 2008 is not unlikely, although I believe that we may have to wait until 2012 before this price point is reached. However, once cleared then we can expect to see crude oil move towards the $176 per barrel in the next eighteen months, as I believe we are now seeing the start of an extended and prolonged trend for the energy sector with crude oil leading the way.
Hi Anna, your OIL “WTI” would that be the “W&T Offshore Inc” in the NYQ (taken from Finance Yahoo)?
Regards,
John
Hi John – sorry – the WTI I was referring to is the West Texas Intermediate which is also known as Texas light sweet or Light Sweet Crude Oil – it is generally the oil grade used as the benchmark for oil pricing, as opposed to Brent crude etc which is another grade/type of oil and quoted at a different price on the exchange – hope this explains and many thanks for getting in touch – regards – Anna
Hi Anna,
I’m new to your emails. They are great.
What is your prefered strategy for buying both oil and gold using leverage considering your outlook?
Adrian
Hi Adrian – many thanks for your kind comments and I will try to answer your question as best as I can. The simple answer of course is that it does depend on your degree of risk along with your experience and trading capital available. As I have been trading for many years ( and indeed started in the futures market ) I tend to use futures, although of course these are relatively high risk, counter balanced by the fact that futures are a pure market of a zero sum game – in other words profit for one trader is a loss for another, with all the trades executed through a central exchange. There are many other ways, such as spread betting, which although leveraged as well, will allow for smaller bet size per trade. Then of course there is binary betting ( binary options ) and for very low risk I would suggest fixed odds bets, where your risk is limited and known before you enter the trade or bet, and this is a cash only position, so no leverage, and therefore much lower risk. Finally of course there are both ETF’s ( which I don’t trade or recommend) and also stocks ( which I do trade ofcourse!), where strong trends in the commodity will often ( but not always ) be reflected in the stock itself, such as a gold mining company or oil stock. In the case of gold ( BUT NOT OIL!!) I also buy the physical asset. Two gold stocks I have on my watch list at the moment are Goldcorp and Yamana Gold. Hope this helps and good luck with your trading – regards Anna
Hi Anna,
As oil is pulling back this week, the markets have taken a nice trip north. Is the a direct correlation between (or counter trend) oil and the markets in general, or is it possible we can sustain this bullish trend in the markets as oil trends higher? What are you thoughts?
Adrian
Hi Adrian – many thanks for your interesting question which I will try to answer as follows. Equity markets are all at a critical level at present, and reaching dangerous tipping points, with the UK FTSE 100 a classic example, as it struggles to break above the 6150 level. The longer this sideways price action continues then the more likely is a significant retracement from this area. However, equally, if this level is breached then I expect to see the index climb rapidly to retest the highs of the last few years, and possibly create a triple top on the daily chart as a result, a key technical signal for technical traders. With regard to oil, because oil is quoted in dollars, higher oil prices create petro dollars which must be recycled, so higher oil prices will generally correlate with a weaker dollar, all else being equal. The USD index of course looks extremely bearish at present which has helped oil to push higher coupled with the fundamentals and technicals. The oil price is also extremely sensitive to geo political issues, and Libya aside, the real issue is likely to be Saudi Arabia, as the Saudi’s have deliberately underestimated their oil reserves for years. If equities do continue their current bullish momentum as investors continue to believe that we are emerging from recession into early expansion, then expect to see equities move higher along with oil. The VIX has declined and returned to complacency once again. Finally, the US dollar appears to have lost the confidence of traders and investors who at present do not see this currency as a safe haven, probably due to the FED’s QE2 policy – the irresponsible fiscal mess created by Bernanke et al! This is why we’ve seen gold, silver and the Swiss Franc climb as the major beneficiaries in the risk on/risk off game of correlated trading! – hope this helps – regards Anna – PS – I expect to see oil break the $147 high by the end of the this year or by early next year at the latest!