I have blogged on the similarities between past oil bottoms and today’s. https://www.valuetrend.ca/history-may-show-us-when-to-buy-oil/
Thus far, this year’s pattern on oil seems to be very similar to that of 2008-9’s. WTI’s bottom in 2009 was characterized by a complex bottom, followed by a rally, followed by a consolidation. The chart below shows us that it was about a 6 month consolidation period before the real “meat” of the new uptrend happened.
The chart below is the current view of WTI’s bottoming process. Note the similar time frames – both 2009’s bottom and todays bottoming process took place over the winter. If WTI is to follow a similar pattern to that of 2009’s, we should expect to see some sideways consolidation over the next 1-2 months. Such a consolidation may lead us into a similar breakout as happened in the spring of 2009. While the 2009 breakout occurred in early May, you can see that WTI had already consolidated since March. My traders intuition – which I will admit is a less quantitative way of looking at things – is telling me that we may see a similar pattern this time around. Such a consolidation may hold WTI between $55-$60 before a breakout in June or July, should the patterns of 2009 repeat.
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12 Comments
Hi Keith. My Question is related to supply/demand. It seems to me that we have a total excess of supply. The storage tanks of the American conglomerates are almost full to capacity. The Arabs are committed in bankrupting both American and Russian players in the field. Would you not think there should be a capitulation period of many of the American, Canadian, and Russian Companies before a consolidation phase would commence. In 2008 the Excess supply was not there, we had a money/housing Bubble complements of our friendly banking firms. Yes the oils followed the sell off but for a totally different reason than Excess Supply. I would think that at the rate of excess oil that we should almost be able to fill our tanks for about 30-40 dollars or less. I was going to wait for the resurgence of a 30 dollar barrel of oil before buying back in. I await your spider comments. As Usual thanks for your many hours of helping us in the trenches.
Leo–this is truly an excellent question–one that is on my mind as well. I do look at the fundamentals, but…..
When I look at a chart, and make commentaries, I am reading what investors and traders are doing (which are supply demand on the stock/contract pricing momentum, rather than the supply/demand fundamental values for the commodity or the company in question). So at this moment, fundamentals aside, traders have bid oil up from an oversold level in a very similar pattern to that of 2009. That’s because, despite that circumstances are different — human reaction and patterns are the same–always.
Also–program trading creates new demand when something gets rolling–I took a course on understanding dark pools and program trading recently and it was awakening.
My view is that its – as always–up to the traders to control price–in the short run. So I would view a bust through $60 to the upside as favorable–only because traders and program trading will buy on that bust. Until then, it may float sideways after such a nice run from the $45-ish bottom. Or, it may crash and burn. For now, I am not buying, but will trade as the chart suggests and things develop.
Looks very similar to 2009 to me too. I actually didn’t expect it to take out 60 dollars but it did that this morning so I added a bit to my USO position. Oil seems to be trading more technically than with the fundamentals at this time if that makes sense.
Dave–see my answer to Leo’s question–you are correct–its all technical/ crowd /momentum trading right now.
‘Reminds me of the Mark Twain quote “History does not repeat itself, but it rhymes”
Same story for nat gas Keith?
No Seth–the pattern is not at all the same–its still basing. I’d wait. I’ll blog on nat gas soon.
It however looks like a bearish rising wedge now off the bottom in oil on 03/19/2015. At least it looks that way on the 4 hours charts
Oil is breaking down the aforementioned bearish rising wedge. Could it be oil retraces a bit now. It’s had a decent move off it’s most recent lows. A move to $55 or lower could be in the cards short term perhaps.
Good prognosis Dave–I rather agree with your $55-ish target.
Also–I would hate to be long too many oil sands stock right now, given the election out west and oil’s pullback potential.
Hi Keith,
I like your analysis on the chart for oil and I think it is very similar to the pattern of 2009. However, I believe that this time could possibly be a bit different for a couple reasons. First thing is that the seasonally strong period for oil is nearing its end. Secondly (more importantly), back in 2009 the federal reserve was only a few months into QE (Quantitative Easing), and the USD was in a secular bear. This time around there is no QE and the fed is on the verge of a tightening cycle. This will make the USD stronger and be a major headwind for oil and all other other commodities for that matter.
Thanks,
Parm
Good point Parm–although I will refer only to the technical here–
There is a major bearish commodity cycle that should broadly be a headwind against oil and most major commodities for the coming 5 years or so. I have blogged on that cycle (35 year cycle) in the past–type in commodity cycle in a search on this blog to see the chart.