Whither Goes the Price of Oil?

The price action in the oil pit intrigues us at the moment, as it has rallied up from its January and February lows of around $30 to its current recovery high of $74 set in June and August ($26 in terms of the Oil ETF).

Now what? We have enclosed three charts below to help give us any clues on oil's future direction between now and the end of the year. These are the iPath S&P Crude Oil Total Return Index ETF (OIL), the crude oil sweet with Gann analysis, and the energy sector versus the S&P 500 with oil sentiment.

The top chart of OIL's share price action shows that the price has recovered since the July lows on falling volume and is consolidating under its June highs of $26. In the second chart we can see oil is at a critical level in both time and price. It needs to break upwards before the end of September to avoid breaking its upward trend line since February. If this occurs a rapid rise to $90 could occur.

Sentiment in the oil patch has yet to reach overly optimistic levels that normally mark an important top, and the sector's relative strength against the S&P 500 is showing some signs of life at support of the October lows of last year.

On balance we are negative on oil over the next twelve months and do not expect OIL to break through its old June highs of $26. However, we fully admit that a break upwards (on high volume) before the end of September may trigger a sharp move towards $90 and this will probably produce opportunities for oil shares and, given their large index weightings, lift markets to further post recovery highs.

Source: BigCharts.com

Source: IDS

Source: Ned Davis Research

Disclosure: No positions.

Comments

[Shale Gas:]

"oil patch has yet to reach overly optimistic levels"

it seems that the oil patch is always optimistic no matter what.

Sep 17 07:28 AM

[BullnBear:]

If we manage an outcome that would strengthen the U.S. dollar then I believe we would see a drop in oil but if and until that occurs oil will probably stay elevated.

I admit that from a fundamental level I don’t understand our current pricing environment but from a currency valuation level it’s clear.

Sep 17 09:55 AM

[Ferdinand E...:]

Saudi Arabia (and perhaps several others) have said that $75/b is a "fair price". If they really mean this then they will have no problem in getting it, and listen, they don't need any help from speculators.

.

Sep 17 10:27 AM

[ssquared:]

And what will happen to the price of oil if;
A) the Israelis attack Iran
B) Iran mines the Staits of Homuz

Answer: As Jackie Gleason used to say: To da moon!

Sep 18 12:13 PM

[montyman:]

What do you say about gold in such a case?


On Sep 18 12:13 PM ssquared wrote:

> And what will happen to the price of oil if;
> A) the Israelis attack Iran
> B) Iran mines the Staits of Homuz
>
> Answer: As Jackie Gleason used to say: To da moon!

Sep 19 07:56 PM