Analysts predict the fallout from the recent OPEC meeting combined with negative impacts on alternate energy production to keep crude oil futures at or above $100 a barrel in the near term. Investors following various trade and buy actions including investment in ETFs are recommended to buy in the “dips” defined by a Simple Moving Average below 100. There has been a longstanding resistance at 100, but the recent meeting, increased consumption and lower alternative output may indicate a reversal that may edge a reasonable buy price higher. For more on this continue reading the following article from The Street.
The following commentary comes from an independent investor or market observer as part of The Street’s guest contributor program, which is separate from the company’s news coverage.
The recent OPEC meeting, titled by the media as "one of the worst ever" saw Angola, Libya, Iraq, Algeria and Ecuador choosing to support Iran and Venezuela , which are becoming more influential, rather than siding with Saudi Arabia and its allies Kuwait, Qatar and United Arab Emirates. The sentiment toward oil production and outflows leans toward crude oil valuations holding support above $100 a barrel in the near term.
The nuclear crisis in Japan and the subsequent decline in energy production coupled with the massive drought in China have led to a marked decline in hydroelectric energy production. Both of these issues are weighing on oil futures valuations, and add weight to the calls for crude oil to track higher.
The recently published Statistical Review of World Energy from BP revealed that the U.S. is no longer the consumer of energy globally. China now tops the list with a 20.3% share of global energy consumption. The report showed that 2010 World Proved Oil Reserves were sufficient to meet 46 years of global production. Oil prices have risen over 10 times since 1999, and by default it would seem that the path of least resistance is to buy the dips on crude oil.
The potential for new trade signals to form on today is weak, after the recent explosive moves that hit for a 30-minute period in the previous session. The reversal through resistance at 100.00 on WTI was highlighted recently, and has followed through to hit 101.50. The 100-day Simple Moving Average area at 99.50 has offered an area to buy-the-dip, again.
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(39.80), the exchange-traded fund (ETF) that tracks oil momentum, is for consolidation above 37.50, and to struggle to easily break 41.00 resistance. The ETF is likely to continue to lag behind the main moves seen in WTI futures contract trade, as major oil price action is taking place while the U.S. session is closed. Any existing short-USO positions should be closely monitored while recent price action is absorbed. USO may struggle to offer a fair reflection of the choppy 24-hour moves currently being seen in crude oil futures trade, and a weekly chart close may offer some clarity.
Alternate 24-Hour Trade:
Investors who do not want to wait for their regional cash market to open, or do not have 24-hour access to the market they have open positions in, are able to access the 24-hour currency market. There is potential to analyze and trade currencies in a high-volume market that is supported by the global inter-bank system.
Investors can trade currencies in-line with a rising global market, or trade ahead of a falling cash market open. Being able to use currencies offers the opportunity to be in a trade before the regional market opens.
Traders could trade the currency pair EUR/USD in-line with the potential seen in global crude oil movement. Buying or selling the US dollar against the euro is a simple process of placing a sell order on EUR/USD, and then closing that same position in a similar way that equity trades would be managed.
Oil Price Action:
Strong buying activity was seen at 97.00 on WTI in April and May. This price reversal and swing point area once again allowed traders to buy the dips. Market alerts will be sent to subscribers as sustainable momentum builds.
Main WTI support: 97.50. Main WTI resistance: 102.50.
ETF Price Action:
Strong buying activity was seen at 42.00 on USO in April and May. This potential price reversal swing point area has once again been shown as a massive area of resistance that is hard to break, and will continue to be closely monitored. Upside moves are muted, but a move higher in USO from 40.20 may be the path of least resistance if WTI breaks 101.50 going higher.
Main USO support: 36.50. Main USO resistance: 42.50.
WTI 100-day Simple Moving Average (SMA) is at 99.90. WTI has a 36-month 75% correlation to S&P moves, and a 90% correlation to the euro (Eur/Usd) currency pair.
Daily trading range on WTI is $3.80, which is way above the historical norm and indicates increasing speculative interest, and increased volatility to come.
No trade signals have formed in the near-term. Recent movement came too quickly to create trade potential confirmation. Clients will be notified when price action confirms potential.
Sentiment toward WTI trade is mixed after recent tests of support held, but strong upside resistance was not able to be easily broken. Price action favors consolidation of recent moves in the near-term. Traders committing to oil trades at these levels need to reduce trade size, as volatile intra-day trading patterns are likely to continue for a while.
This article was republished with permission from The Street.