Oil May Be Ready to Crack

Kramer said it best, “oil is a battlefield” .  It seems that both technical and fundamental news share little to no consensus as to which direction oil prices will trend. ….except that we may be missing a small signal alerting us to oil’s next move.

If you look at the monthly crude oil chart, the last 2 weeks of price activity appear to qualify as an “ascending triangle”.

Crude Oil Prices
April Crude Oil

An Ascending Triangle will have a resistance price.  In our case the April contract for WTI oil has been unable to trade higher than $55 and it has tested this level 3 times.  The reason the price has been met with resistance is that there are a number of sell orders at or around $55 which cause the price to drop each time it is tested.  Eventually the market will run low on sell orders at $55 which will enable the price to break through this price and trade higher.  These breaks are usually accommodated with very high volume.

In the mean time, the lower trend line is slanted upwards indicating higher lows.  For an Ascending Triangle to be validated it must have a minimum of 2 reaction lows (the points that connect the lower trend line) which this formation has.

Ascending Triangles are a bullish indicator, which if the formation holds then we might anticipate a strong break out to the upside.  Many times a news item will facilitate this push.  The latest irrational and self-destructive terrorist actions from ISIS having slaughtered 21 Egyptian Christians in Libya wasn’t enough.  The ongoing threat to Iraq and Libyan oil supplies isn’t enough. West Virginia’s train derailment spilling and exploding over 410,000 gallons of oil into the Kanawha River wasn’t enough.  So what will it take? Will today’s Baker Hughes Rig Count be enough?  My guess is probably not.  We are still producing more oil than is consumed which is reinforcing the selling pressure on oil prices.

How long before the price breaks out of this consolidation phase?  No one knows and is driving a lot of investors and analysts crazy.  As I mentioned in my last Blog post analysts never get enough credit for being correct in their projections and those analysts that make the wrong educated guess get slaughtered by all the armchair players.  However, with out these educated projections how can companies reduce risk and still increase profits?

It’s the waiting that kills everyone.  Meanwhile, gasoline prices are moving higher and instep with oil prices.

Gasoline Prices
Monthly Gasoline Prices

 

Gasoline prices have been consolidating and making slightly higher highs as well.  Only a close above $1.88 will show us that this round of sell orders have been eliminated.

My family and friends  in California can not catch a break.  Just when they finally experienced a few months of lower gasoline prices, the United Steel workers walked out of 9 refineries which make up 13% of US gasoline production.  These workers are fighting for safer working conditions. Last Wednesday the electrostatic precipitators (ESP) in the Torrance refinery near Los Angeles exploded.   The irony of this story is that no one from the Torrance refinery was striking.  In fact the 12-story tall equipment that exploded and released toxic fumes into the nearby neighborhoods was used to reduce particulate matter and ammonia emissions during the refining process. The ESP unit inside the refinery could stay closed for 6 months and take up to a year to be replaced.

California gasoline prices spiked 10 cents higher after the plant explosion.

I guess our friend Kramer should change his statement to “Both oil and gasoline are battlefields”!

***Post Update:  The Baker Hughes Weekly Report for February 20, 2015, counted 48 additional closed rigs from last week which is a 4% drop.  Oil futures dropped 1% (52 cents) on the news.   This makes a total of 461 closed US rigs over the last 12 months.

 

 

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