Best of the Week
Most Popular
1. Five Charts That Show We Are on the Brink of an Unthinkable Financial Crisis- John_Mauldin
2.Bitcoin Parabolic Mania - Zeal_LLC
3.Bitcoin Doesn’t Exist – 2 - Raul_I_Meijer
4.Best Time / Month of Year to BUY a USED Car is DECEMBER, UK Analysis - Nadeem_Walayat
5.Labour Sheffield City Council Election Panic Could Prompt Suspension of Tree Felling's Private Security - N_Walayat
6.War on Gold Intensifies: It Betrays the Elitists’ Panic and Augurs Their Coming Defeat Part2 - Stewart_Dougherty
7.How High Will Gold Go? - Harry_Dent
8.Bitcoin Doesn’t Exist – Forks and Mad Max - Raul_I_Meijer
9.UK Stagflation Risk As Inflation Hits 3.1% and House Prices Fall - GoldCore
10.New EU Rules For Cross-Border Cash, Gold Bullion Movements - GoldCore
Last 7 days
This Could Be The Hottest Mining Stock Of 2018 - 22nd Jan 18
Stock Index Trend Trade Setups for the SP500 & NASDAQ - 22nd Jan 18
Stock Market Deceleration / Distribution - 22nd Jan 18
US Markets vs Govt Shutdown: Stock Markets at all time highs - 22nd Jan 18
Land Rover Discovery Sport - 1 Month Driving Test Review - 22nd Jan 18
Why should you use high-quality YouTube to mp3 converter? - 22nd Jan 18
Silver As Strategic Metal: Why Its Price Will Soar - 21st Jan 18
Stocks, Gold and Interest Rates Three Amigos Ride On - 21st Jan 18
Why Sometimes, "Beating the S&P 500" Isn't Good Enough - 21st Jan 18
Bunnies and Geckos of Sheffield Street Tree Fellings Protests Explained - 21st Jan 18
Jim Rickards: Next Financial Panic Will Be the Biggest of All, with Only One Place to Turn… - 20th Jan 18
Macro Trend Changes for Gold in 2018 and Beyond - Empire Club of Canada - 20th Jan 18
Top 5 Trader Information Sources for Timely, Successful Investing - 20th Jan 18
Bond Market Bear Creating Gold Bull Market - 19th Jan 18
Gold Stocks GDX $25 Breakout on Earnings - 19th Jan 18
SPX is Higher But No Breakout - 19th Jan 18
Game Changer for Bitcoin - 19th Jan 18
Upside Risk for Gold in 2018 - 19th Jan 18
Money Minute - A 60-second snapshot of the UK Economy - 19th Jan 18
Discovery Sport Real MPG Fuel Economy Vs Land Rover 53.3 MPG Sales Pitch - 19th Jan 18
For Americans Buying Gold and Silver: Still a Big U.S. Pricing Advantage - 19th Jan 18
5 Maps And Charts That Predict Geopolitical Trends In 2018 - 19th Jan 18
North Korean Quagmire: Part 2. Bombing, Nuclear Threats, and Resolution - 19th Jan 18
Complete Guide On Forex Trading Market - 19th Jan 18
Bitcoin Crash Sees Flight To Physical Gold Coins and Bars - 18th Jan 18
The Interest Rates Are What Matter In This Market - 18th Jan 18
Crude Oil Sweat, Blood and Tears - 18th Jan 18
Land Rover Discovery Sport - Week 3 HSE Black Test Review - 18th Jan 18
The North Korea Quagmire: Part 1, A Contest of Colonialism and Communism - 18th Jan 18
Understand Currency Trade and Make Plenty of Money - 18th Jan 18
Bitcoin Price Crash Below $10,000. What's Next? We have answers… - 18th Jan 18
How to Trade Gold During Second Half of January, Daily Cycle Prediction - 18th Jan 18
More U.S. States Are Knocking Down Gold & Silver Barriers - 18th Jan 18
5 Economic Predictions for 2018 - 18th Jan 18
Land Rover Discovery Sport - What You Need to Know Before Buying - Owning Week 2 - 17th Jan 18
Bitcoin and Stock Prices, Both Symptoms of Speculative Extremes! - 17th Jan 18
So That’s What Stock Market Volatility Looks Like - 17th Jan 18
Tips On Choosing the Right Forex Dealer - 17th Jan 18
Crude Oil is Starting 2018 Strong but there's Undeniable Risk to the Downside - 16th Jan 18
SPX, NDX, INDU and RUT Stock Indices all at Resistance Levels - 16th Jan 18
Silver Prices To Surge – JP Morgan Has Acquired A “Massive Quantity of Physical Silver” - 16th Jan 18
Carillion Bankruptcy and the PFI Sector Spiraling Costs Crisis, Amey, G4S, Balfour Beatty, Serco.... - 16th Jan 18
Artificial Intelligence - Extermination of Humanity - 16th Jan 18
Carillion Goes Bust, as Government Refuses to Bailout PFI Contractors Debt and Pensions Liabilities - 15th Jan 18
What Really Happens in Iran?  - 15th Jan 18
Stock Market Near an Intermediate Top? - 15th Jan 18
The Key Economic Indicator You Should Watch in 2018 - 15th Jan 18
London Property Market Crash Looms As Prices Drop To 2 1/2 Year Low - 15th Jan 18
Some Fascinating Stock Market Fibonacci Relationships... - 15th Jan 18
How to Know If This Stock Market Rally Will Continue for Two More Months? - 14th Jan 18
Everything SMIGGLE from Pencil Cases to Water Bottles, Pens and Springs! - 14th Jan 18
Land Rover Discovery Sport Very Bad MPG Fuel Economy! Real Owner's Review - 14th Jan 18

Market Oracle FREE Newsletter

6 Critical Money Making Rules

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