Best of the Week
Most Popular
1. Dollargeddon - Gold Price to Soar Above $6,000 - P_Radomski_CFA
2.Is Gold Price On Verge Of A Bottom, See For Yourself - Chris_Vermeulen
3.Dow Stock Market Trend Forecast 2018 - Nadeem_Walayat
4.Gold Price to Plunge Below $1000 - Key Factors for Gold & Silver Investors - P_Radomski_CFA
5.Why The Uranium Price Must Go Up - Richard_Mills
6.Dow Stock Market Trend Forecast 2018 - Video - Nadeem_Walayat
7.Jim Rogers on Gold, Silver, Bitcoin and Blockchain’s “Spectacular Future” - GoldCore
8.More Signs That the Stock Market Will Rally Until 2019 - Troy_Bombardia
9.It's Time for A New Economic Strategy in Turkey - Steve_H_Hanke
10.Fiat Currency Inflation, And Collapse Insurance - Raymond_Matison
Last 7 days
How the US Dollar Penalizes Emerging Asia - 24th Sep18
Stock Market Macro/Macro View: Waves and Cycles Part II - 24th Sep18
DJIA Makes New High  - 24th Sep18
Gold Price Trend Forecast 2018 - 24th Sep18
The Stock Market Has Been Exceptionally Strong this September. What’s Next for Q4 2018 - 24th Sep18
Gold / US Dollar Inverse Trend Relationship Video - 23rd Sep 18
US and Global Stocks, Commodities, Precious Metals and the ‘Anti-USD’ Trade - 23rd Sep 18
Gerald Celente Warns Fed May Bring Down the Economy, Crash Markets - 23rd Sep 18
Top 3 Side Jobs for Day Traders - 23rd Sep 18
Gold Exodus to Reverse - 22nd Sep 18
Bitcoin Trader SCAM WARNING - Peter Jones, Dragons Den Fake Facebook Ads - 22nd Sep 18
China Is Building the World’s Largest Innovation Economy - 21st Sep 18
How Can New Companies Succeed in the Overcrowded Online Gambling Market? - 21st Sep 18
Golden Sunsets in the Land of U.S. Dollar Hegemony - 20th Sep 18
5 Things to Keep in Mind When Buying a Luxury Car in Dubai - 20th Sep 18
Gold Price Seasonal Trend Analysis - Video - 20th Sep 18
The Stealth Reason Why the Stock Market Keeps On Rising - 20th Sep 18
Sheffield School Applications Crisis Eased by New Secondary Schools Places - 20th Sep 18
Precious Metals Sector: It’s 2013 All Over Again - 19th Sep 18
US Dollar Head & Shoulders Triggered. What's Next? - 19th Sep 18
Prepare for the Stock Market’s Volatility to Increase - 19th Sep 18
The Beginning of the End of the Dollar - 19th Sep 18
Land Rover Discovery Sport 'Approved Used' Bad Paint Job - Inchcape Chester - 19th Sep 18
Are Technology and FANG Stocks Bottoming? - 18th Sep 18
Predictive Trading Model Suggests Falling Stock Prices During US Elections - 18th Sep 18
Lehman Brothers Financial Collapse - Ten Years Later - 18th Sep 18
Financial Crisis Markets Reality Check Now in Progress - 18th Sep 18
Gold’s Ultimate Confirmation - 18th Sep 18
Omanization: a 20-year Process to Fight Volatile Oil Prices  - 18th Sep 18
Sheffield Best Secondary Schools Rankings and Trend Trajectory for Applications 2018 - 18th Sep 18
Gold / US Dollar Inverse Correlation - 17th Sep 18
The Apple Story - Trump Tariffs Penalize US Multinationals - 17th Sep 18
Wall Street Created Financial Crash Catastrophe Ten Years Later - 17th Sep 18
Trade Wars Are Going To Crash This Stock Market - 17th Sep 18
Why Is Apple Giving This Tiny Stock A $900 Million Opportunity? - 17th Sep 18
Financial Markets Macro/Micro View: Waves and Cycles - 17th Sep 18
Stock Market Bulls Prevail – for Now! - 17th Sep 18
GBPUSD Set to Explode Higher - 17th Sep 18
The China Threat - Global Crisis Hot Spots & Pressure Points - 17th Sep 18 - Jim_Willie_CB
Silver's Relationship with Gold Reaching Historical Extremes - 16th Sep 18
Emerging Markets to Follow and Those to Avoid - 16th Sep 18
Investing - Look at the Facts to Find the Truth - 16th Sep 18
Gold Stocks Forced Capitulation - 15th Sep 18
Hindenburg Omen & Consumer Confidence: More Signs of Stock Market Trouble in 2019 - 15th Sep 18
Trading The Global Future - Bad Consequences - 15th Sep 18
Central Banks Have Gone Rogue, Putting Us All at Risk - 15th Sep 18

Market Oracle FREE Newsletter

Trading Any Market

Crude Oil Price Drivers 

Commodities / Crude Oil Apr 11, 2011 - 08:08 AM GMT

By: John_Hampson

Commodities

Best Financial Markets Analysis Article1. Developments in the Middle East and North Africa - A real supply loss in Libya and fear of supply loss elsewhere. The fear factor and uncertainty premium is likely to last all the way through to new elections, but intermittent 'good news' from the region should ease the oil price.


2. Excessive liquidity and speculative momentum - Due to low interest rates in the developed world, money is encouraged to seek a return in hard assets. In the world's largest economy we still remain some way from a rate rise from current 'negligible' levels. Monetary stimuli such as quantitative easing create more money chasing the same amount of real assets. A lack of QE extension beyond QE2 would help reduce the tide of money.

3. A secular bull market in commodities - Born out of underinvestment in supply in the 1980s and 1990s and increased global demand (industrialisation of China, global population growth). This provides an ongoing anchor for oil investors and speculators, although not forever (lagged supply increases, alternative fuel growth, China derailing, global recession). One measure of the secular progression is the Dow-Oil ratio, which currently stands at 110 but reached as low as 20 at the last secular commodities bull conclusion around 1980.

Underlying Source: Approximity

4. Peak Oil - Where demand permanently exceeds supply. Whilst this may transpire in our current decade, it is less relevant short term, because although global demand is currently back at all time high levels, crude stocks remain ample (above the historical average due to slack built up during the recession of 2007-9).

Source: EIA

5. Global growth - Leading indicators and global growth forecasts continue to point to 2011 being a strong year. However, higher crude oil prices crimp growth (every $10 rise cuts growth by roughly 0.25%), and historically when global fuel expenditure reaches 5% of GDP economic slumps typically occur. If crude prices remain above $100 for the rest of the year then that level should be reached.


Source: Danske Markets

Those countries most at risk from negative growth impacts by rising energy prices are Korea and Singapore.


Source: Nomura / Short Side Of Long

6. A hedge against inflation - Shadowstats 'undoctored' inflation statistics suggest a rising rate that is already around 9% annual in the US, and inflation appears set to accelerate, as suggested by the chart below. Clearly a feedback loop is possible, as rising oil creates higher price inflation which encourages more money into oil.


Source: Chris Puplava

7. Technical analysis - By TA, WTI Crude is destined for a 100% retracement of its 2008 falls, having broken decisively beyond the 61.8 fib. Brent is yet closer to this target, and technical traders may have their eyes on this double top prize.


8. A weak US Dollar - As WTI Crude is priced in US Dollars, there has historically been an inverse relationship between the two. The major component of the US Dollar index's fortunes is the Euro-USD pair, and as the chart shows, the contract broke out beyond key long term declining resistance. However, the extreme USD bearishness readings remain a contrarian warning sign and we can next look to Fib and pitchfork resistance (shown) as another potential reversal point.


Underlying Source: Swing Traders Edge

9. Crude Oil price versus futures price 11 months out - History suggests crude does not peak until the current contract price is around $5 higher than the contract price 11 months out. Currently we are half a dollar under the 11 month price so there is some way to run.

10. Solar Cycles - Solar cycles forecast a price peak of at least $200 around 2013, and an extreme relative price peak to stocks at that time. Solar cycles predict inflation and growth into 2013 and a recession thereafter. For realisation, oil cannot run up too far too fast from current levels, but a sustained pause or pullback en route is by implication required.


Underlying Source: NOAA

John Hampson

www.amalgamator.co.uk

John Hampson, UK / Self-taught full-time trading at the global macro level / Future Studies
www.amalgamator.co.uk / Forecasting By Amalgamation.

© 2011 Copyright John Hampson - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules