Thursday, June 26, 2014

Oil Falls; No Longer Playing Geopolitical Games

On Tuesday we noted technical developments provided confidence for a projection of lower crude oil prices. Admitting the number of geopolitical developments left it difficult to project oil supply outcomes, we suggested technical analysis might prove a helpful guide.

Specifically, my call was that the bearish engulfing of Friday/Monday on the continuous chart had shown a likely trend change from bullish to bearish. In order for a bearish reverse to be more confidently confirmed, I further suggested that a consistent settlements below the Monday ‘mid’ of $106.795 (CLQ4 –August ’14) on Tuesday, Wednesday and Thursday was necessary.

Right now, the contract is $0.86 lower to 105.64. A settlement here (or even as high as $106.13) would create an additional bearish engulfing. There is room for a strong sell-off as ‘non-commercial’ accounts are holding record net longs. A move to $95 would be extraordinary given current geopolitical conditions, but as far as positioning and technical conditions are concerned, not necessarily to be dismissed. 

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