Zak mir on crude oil, the charge of the light brigade, BP & Shell!

For all of us who missed the wars of the 19^th and 20^th centuries (and yes, that includes me!!), we should perhaps be ‘grateful’ to the “powers that be” in Ukraine and Russia for providing us with a taste – so far – of what it must have been like on the approach to the conflict. We even have the Crimea involved, something which evokes the Charge of the Light Brigade 160 years ago. Anyone fancy getting involved in a modern real life re-enactment of that?

Still, while we mull over how, in the age of the iPhone and wi-fi, nothing has changed in geopolitics, it may be worth contemplating just how much of an effect schoolboy playground diplomacy has influenced the oil market. As you might expect, there has been an uplift for WTI.  But, either the market is in denial or just in wait and see and mode as we have not yet seen the traditional surge that you might have expected in a standoff akin to what we are seeing now. Presumably, most expect a Russian walkover and toothless West posturing?

In looking at the daily chart of front month Crude, we actually have what I would describe as quite a classic charting set up. This is because while there was a bear trap rebound from back below former February $101.02 support, the floor at $100.13 was actually just above the 200 day moving average – currently at $100.05. Such situations where the bears fail to get a stock or market to even touch the 200 day line are generally the trigger for significant rallies. Therefore, we may have to brace ourselves for what could be a sharp move. At the very least it can be said that while there is no end of day close back below the 200 day line the upside here may be towards the November price channel top drawn through $106 as a “minimum” over the next month.

So, if it appears that the technical outlook of the underlying commodity is set fair near term, one might look to specific oil & gas majors as a decent place to further investigate the long argument. This is especially the case given that the likes of BP (BP.) and Royal Dutch Shell (RDSB) are FTSE 100 heavyweights and could determine whether we see a topping out for the index.

In the case of BP, the bounce to start this week looks to have come off the floor of a rising trend channel in place on the daily chart since last October. This has its floor at 480p, with the implication being that even if you think this is a stock which is set to top out for now in the 500p zone, it may be wise to wait on at least an end of day close back below the 2013 uptrend line before going short. This is even though the latest breakdown was started by an unfilled gap to the downside, and recent days have seen the blue 50 day moving average at 489p block recovery. The RSI below neutral 50 at 43 is also a negative, so really everything here hinges on 480p holding.

Interestingly enough, while BP seems to be on the back foot, fellow oil & gas giant Royal Dutch Shell (RDSB) seems to be sporting an altogether more healthy charting appearance. This is said in the wake of a rebound off a November price channel floor at the 20 day moving average level of 2,320p. The implication now is that longs would remain in place for a move to the top of the 2013 price channel target – as high as 2,420p, and with any weakness in the interim towards the 20 day line being regarded as a buy opportunity. Admittedly though, in the present environment going long here could be regarded as quite an aggressive thing for traders to do, given the geopolitical volatility.