As speculative commodity traders, there are few occasions when it is hard not to make money, and certainly at present we have several stand out opportunities. These opportunities are rare, but when they occur, it’s time, as they say to ‘fill your boots’. Two such markets at present are gold and oil. For gold, as I wrote yesterday, the trapdoor has indeed opened and overnight gold prices have been hit further with all the technical and fundamental forces combining to take the precious metal below $1000 per ounce and beyond.
For oil, it is OPEC who have provided the framework with their declared and very public intent to take on the alternative energy suppliers head to head. Their statement that oil prices would not reach $100 per barrel in the next decade has drawn a line in the sand, and provided they are able to control and manage their member states, the price war with the alternative suppliers will continue until their ultimate objective is achieved, which is make such extraction processes uneconomical.
From a technical perspective $64 per barrel was a bridge too far, with the extended congestion phase of May and June finally breaking through the well defined floor of support in the $57.30 per ounce region, as denoted by the blue dotted line of accumulation. The move in early July was accompanied with high volume on the wide spread down candle of the 6th July, confirming the heavy selling, with the following day’s price action then signalling some profit taking on equally high volume before moving into a further congestion phase and testing the $54 per barrel area to the upside. This week has seen oil take a further leg down in the bearish trend, moving through the next potential level of support in the $50.50 per barrel area, and once again denoted by the blue dotted line of further accumulation. With this level now breached we are looking for a return to test the lows of March in the $47.20 per barrel area, and if this penetrated, then crude oil is set to fall further, and down test the $47.09 per barrel low once again.
Moving to the fundamental picture, Wednesday’s oil inventories did little to stem the bearish sentiment with a build of 2.5 bbls, against a forecast of a draw of -1.7 bbls, and along with OPEC gave the commodity a helping hand lower. Even the US driving season is failing to halt the current downwards move, and with the US dollar continuing to remain bullish ahead of the FOMC next week, the longer term outlook for oil remains bearish. As always, any reversal higher will be clearly signalled through the prism of volume price analysis with short term speculative profit creating intraday moves to the upside.
OPEC’s decision to take on the alternative energy producers has also had some serious consequents on countries such as Venezuela and Russia. In Russia’s case the consequences are perhaps more severe with a collapse in commodity prices coupled with Western sanctions helping to drive the Russian economy into the ground. In fact according to UniCredit Russia will not have any money left in their oil reserve fund by the end of next year. And if this were not bad enough, the futures market is factoring in no real recovery in oil prices for two to three years.
By Anna Coulling
Charts are from NinjaTrader and the trading indicators from Quantum Trading.
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