Oil, up or down?
Oil has been fluctuating around $70 a barrel US. Some would argue that oil is at an inflection point. In an article in Smart Money “Active Trader: Oil’s Moment of Truth?”, published August 28, 2009 by Elizabeth O’Brien, she states oil is at an inflection point. This means a dramatic change either up or down in the next month or two. Oil could go as high as $90 or as low as $55.
Most experts would argue fundamentals are weak with excess supply and lower demand. That being said, a number of factors impact the price of oil not withstanding the value of the dollar, supply and demand factors and geopolitical events. In addition, a recent study suggests that speculators now account for half of all traders in the main U.S. oil market. In the SFChronicle, David R. Baker wrote on Friday August 28, 2009 that seven years ago, speculators accounted for 20% of oil traders on the New York Mercantile exchange. That number jumped to 55% by the time oil prices reached the peak of $145 last year. The conclusion is that oil prices rose steadily with the price of oil. The study also warns that oil may be caught in a vicious cycle with the US dollar. Many investors fleeing a weakened dollar have put their money into oil, pushing up the price of oil.
When we look at a chart of XEG, an exchange traded fund which replicates the energy index on the S&P/TSX, the current price has been trading above the 50-day moving average since the beginning of March. Technically, the current price is consolidating at the 50 and 100-day moving average and it looks like the current price could cross the 50-day moving average to the downside. Volume traded is also getting lighter. Seasonally we are coming to an end for any short-term move up due to distributors buying supplies which typically stalls at this point.
Both the technicals and weak fundamentals give me reason to believe that the price could be headed down in the short run.
Most experts would argue fundamentals are weak with excess supply and lower demand. That being said, a number of factors impact the price of oil not withstanding the value of the dollar, supply and demand factors and geopolitical events. In addition, a recent study suggests that speculators now account for half of all traders in the main U.S. oil market. In the SFChronicle, David R. Baker wrote on Friday August 28, 2009 that seven years ago, speculators accounted for 20% of oil traders on the New York Mercantile exchange. That number jumped to 55% by the time oil prices reached the peak of $145 last year. The conclusion is that oil prices rose steadily with the price of oil. The study also warns that oil may be caught in a vicious cycle with the US dollar. Many investors fleeing a weakened dollar have put their money into oil, pushing up the price of oil.
When we look at a chart of XEG, an exchange traded fund which replicates the energy index on the S&P/TSX, the current price has been trading above the 50-day moving average since the beginning of March. Technically, the current price is consolidating at the 50 and 100-day moving average and it looks like the current price could cross the 50-day moving average to the downside. Volume traded is also getting lighter. Seasonally we are coming to an end for any short-term move up due to distributors buying supplies which typically stalls at this point.
Both the technicals and weak fundamentals give me reason to believe that the price could be headed down in the short run.
posted by David Allard at
10:15 AM
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