Oil Charts and Commentary
posted Mar 12, 2006 at 09:12PM
Crude Oil Daily
Crude Oil Weekly
As regular readers know, I have been of the mind that the oil complex is in the midst of a large order consolidation. Think Wave II type stuff: a correction similar in nature to what gold recently underwent, and one order of degree higher than what gold is currently undergoing.
When Wave III starts, and I am kind of using mid-summer as a potential start-point, then owning good quality oil stocks will not just be an exercise in speculative self-interest, but most likely a matter of economic survival.
Up to now I have been of the opinion that correction would take on the form of a triangle. This needs oil to stay above the 60 level. The triangle has not yet been negated, but oil needs a little short-term upside to at least break out of, what is now a bear channel, on the daily chart.
As such I think there is a 50-50 chance that what we get going forward is not a triangle, but a more standard C leg to finish the correction off.
This correction could take oil down to as low as the low 50's where major trend-line support exists. However I think most major technical indicators on all time scales will be throuroughly bottomed out before that.
In a way the bears must be scratching their heads. OPEC has been producing at full capacity, the winter has been warm, and inventory supply levels have been continually building. Despite all that, the bears have not yet been able to push oil below $60 for any appreciable time.
Again this oil bull has very little to do with short term supplies. If it did, it never would have broken $40. This oil bull is concerned with long term production capacity (Peak Oil), geo-political threats to strategic level oil producers (War on Terror) and increased demand from Asia and India.
I think there is more than enough energy to satisfy mankind's demands, but it will require political leaders to get their act together. Ans so far, the major players are more interested in securing these supplies for themselves, and keeping them from their "competitors". It will do neither the US or China any economic good if the other runs out of oil. At some point I expect "competition" to turn to "desparation".
Speaking of weather, it looks like the warm winter will have the water temperatures in the Gulf of Mexico starting the Hurricane Season at historically high levels. Meaning the hurricanes will have even more energy than last years.
The Middle East continues to careen towards chaos. The bears say there is a risk premium attached to the current oil price. I say that premium is very well justified.
As you know I have long standing positions in this sector, particulalry in Canadian/North American junior oil sands. I like this sub-sector for its geographic premium, and for thier long life reserves.
I think those on the sidelines want to take this corrective period as a chance to research up quality oil stocks, track them and look for good technical entry points, or to start an accumulation plan.