Zak Mir on the two crudes WTI & Brent

By Zak Mir.

The recent history for crudle oil on both its major benchmarks, WTI and Brent, has been interesting. From a fundamental perspective, or at least picking out the standouts as far as the newsflow has been concerned, the market for oil has been grappling with the revelation that the US was a net exporter for the first time for 18 years, in November. When you consider that this is the country which is also the world’s largest consumer it further highlights what a sea change this represents.

Indeed, what we have seen for most of this autumn, no doubt helped a great deal by the “fracking revolution”, is the direct oppostive of what Peak Oil Theory has been telling us in the last 5 years. Another surprise, which has also helped oil lower, has been the reduction in tensions in the Middle East, as a deal was done with Iran over its nuclear ambitions. Of course, I am sure that simply running out of money wasn’t a major limiting factor on Washington’s war mongering Hawks! So now we are living under a new “peace in our time” agenda!

However, in the last week, crude oil has bounced back, in the middle of an OPEC debacle, as American fracking puts the cartel firmly on the back foot. The way things stand, it is hard to see OPEC ever being the same again. We are at the exact opposite end of the fundamental spectrum to which we were 40 years ago, during the Arab oil embargo, at the end of 1973. The key lesson here for all of us is to remember that markets move in cycles. If you wait long enough the right price will come along.

So, looking first at the daily chart for WTI, the highlight in the recent past has been the triple bear trap reversal in November:

This would be an impressive extended buy signal in its own right, if it were not for the blatant stop loss hitting price action. June support now looks like a major floor. Adding to the bullish excitement is the way we’ve seen a bullish divergence in the RSI window, over the coure of November. This backs the longs in a significant way. So long as there is no end of day close below the 10MA at $93,96, we could see a retest of October resistance at $104 by the end of the month.

As for Brent the charting picture is even more robust than that of WTI:

In early November, there was a vicious bear trap below the 200MA (now just above $105) over two days. My expectation now is that we should see this contract head towards the top of a rising channel from April, with resistnace projected as high as $117. This may sound ambitious, but the RIS is relatively modest at 61 and there was a Golden Cross buy signal, between the 20MA and 50MA. This should underpin the price significantly. In fact, only an end of day close back below $110 and December intraday support, would cause me to look twice at this chart.