Best of the Week
Most Popular
1. Next Financial Crisis Is Already Here! John Lewis 99% Profits CRASH - Retail Sector Collapse - Nadeem_Walayat
2.Why Is Apple Giving This Tiny Stock A $900 Million Opportunity? - James Burgess
3.Gold Price Trend Analysis - - Nadeem_Walayatt
4.The Beginning of the End of the Dollar - Richard_Mills
5.Stock Market Trend Forecast Update - - Nadeem_Walayat
6.Hindenburg Omen & Consumer Confidence: More Signs of Stock Market Trouble in 2019 - Troy_Bombardia
7.Precious Metals Sector: It’s 2013 All Over Again - P_Radomski_CFA
8.Central Banks Have Gone Rogue, Putting Us All at Risk - Ellen_Brown
9.Gold Stocks Forced Capitulation - Zeal_LLC
10.The Post Bubble Market Contraction Thesis Receives Validation - Plunger
Last 7 days
Stock Market Detailed Map Of Expected Price Movement Before The Breakout - 18th Oct 18
Determining the Outlook for Gold Mining Stock - 18th Oct 18
Investor Alert: Is the Trump Agenda in Peril? - 18th Oct 18
Stock Market is Making a Sharp Rally After a Sharp Drop. What’s Next? - 18th Oct 18
Global Warming (Assuming You Believe In It) Does Not Affect Gold - 18th Oct 18
Best Waterproof Compact Camera Olympus Tough TG-5 Review - Unboxing - 18th Oct 18
Silver's Time Is Coming - 17th Oct 18
Stock Market Volatility Breeds Contempt - 17th Oct 18
Gold 7-Year Bear Market Phase Is Over - 17th Oct 18
Gold - A Golden Escape - 17th Oct 18
Tec Stocks Sector Set For A Rebound? - 16th Oct 18
Real Estate Transactions are Becoming Seamless with Blockchain-Powered Data Sets - 16th Oct 18
Important Elements of a Viral Landing Page - 16th Oct 18
Stephen Leeb Predicts 3-Digit Silver and 5 Digit Gold?! - 16th Oct 18
BREXIT, Italy’s Deficit, The EU Summit And Fomcs Minutes In Focus - 16th Oct 18
Is this the Start of a Bear Market for Stocks? - 16th Oct 18
Chinese Economic Prospects Amid US Trade Wars - 16th Oct 18
2019’s Hottest Commodity Is About To Explode - 15th Oct 18
Keep A Proper Perspective About Stock Market Recent Move - 15th Oct 18
Is the Stocks Bull Dead? - 15th Oct 18
Stock Market Bottoms are a Process - 15th Oct 18
Fed is Doing More Than Just Raising Rates - 14th Oct 18
Stock Markets Last Cheap Sector - Gold - 14th Oct 18
Next Points for Crude Oil Bears - 13th Oct 18
Stock Market Crash: Time to Buy Stocks? - 12th Oct 18
Sheffield Best Secondary School Clusters for 2018-19 Place Applications - 12th Oct 18
Trump’s Tariffs Echo US Trade Policy That Led to the Great Depression - 12th Oct 18
US Dollar Engulfing Bearish Pattern Warns Of Dollar Weakness - 12th Oct 18
Stock Market Storm Crash, Dow Plunges to Trend Forecast! - 12th Oct 18

Market Oracle FREE Newsletter

Trading Any Market

Crude Oil Seeking Black Swan for Spike above $150 in Overbought State

Commodities / Crude Oil Jul 04, 2008 - 12:07 AM GMT

By: Nadeem_Walayat

Commodities Best Financial Markets Analysis ArticleThe recent week has seen crude oil soar through $140 onwards and upwards to a new record high of $146. Much of this gain has been attributed to the growing tension in the middle east with regards a possible Israeli strike on Iranian nuclear infrastructure and the drop in US oil stockpiles.The rise has been accompanied by investors dumping stocks as highly inflationary oil prices continue to contribute towards the destruction of economic activity that pushed the major US indices into technical bear markets (20% down from Oct 07 highs)..


Technical Outlook

My original target for crude oil for 2008 is $150. The rally to date has been far stronger than expected and on face value is signaling much higher prices. Despite crude oil having reached an overbought state since late May, oil prices have stubbornly refused to embark on a significant correction.

Crude Oil Spike to $150

Charts Courtesy of stockcharts.com

On a short-term basis, crude oil is moving in an up channel with an current upper boundary at $147, the temptation exists for crude oil to clearly to continue snaking along the upper channel line in a very dangerously overbought state until oil prices hit $150. This is thus suggesting a continuing trend higher despite the overbought state for another $3 to $4 to try and hit the psychological $150 level. Following which the short-term chart is targeting a swift downtrend towards the support channel at $135 to unwind the short-term overbought state.

Crude Oil Black Swan Spike

On the longer term weekly chart crude oil is critically overbought, the chart implies on a technical basis that a correction is imminent and again confirms a target of $135, which if breached would target a similarly swift move towards $110. However the technical's are at the mercy of BLACK SWAN events, primarily an attack on Iran which WOULD result in a SPIKE higher, how high ? That's something outside of technical analysis.

Another factor that could result in a crude oil spike higher against the bearish technical picture would be if the US Dollar PLUNGED to new lows.

Consequences and Probability of an Attack Against Iran

Straits of HormuzThe US intelligence agencies concluded in December 07 that Iran was many years away from building nuclear weapons, possibly by 2015 at the earliest. However the problem here is the lack of confidence in the accuracy of US intelligence given a string of huge intelligence failures. A strike against Iran would not require extensive military hardware, and given the eagerness of Israel, may not involve US air forces at all. However an attack against Iran would result in retaliation that would spike crude oil much higher. The obvious immediate target for Iranian retaliation would be to try and stop oil shipments through the gulf of hormuz through which 17 million barrels per day flow or about 19% of the worlds supply.

This would result in a prolonged campaign and not something that would go away in a few weeks, therefore the risk is for crude oil not only spiking higher but remaining at elevated levels for the duration of the crisis, even in the face of economic contraction in the US and elsewhere, this would be disastrous for the distressed financial system and global economies, even the emerging powerhouses would feel the impact that would nudge up already excessive inflation rates of 10%+ many notches higher.

Even if the Iranians failed to stop most of the oil flowing through the gulf straits, a shortfall of even 2 or 3 million barrels per day would be enough to tip the precariously balanced world supply / demand into oil shortages, which would result in panic buying and hoarding thus exacerbating the situation.

Therefore this suggests an attack against Iran has to be a low probability of less than 20%, that is unless the Whitehouse is gripped by madness in its final days, hell bent on delivering a scorched earth economy to the Democrats in Novembers election.

In Summary - The technical picture is bearish suggesting an imminent significant correction, but black swan events such as a strike on Iran or a US Dollar collapse would lead to a spike much higher with dire economic consequences.

By Nadeem Walayat
http://www.marketoracle.co.uk

Copyright © 2005-08 Marketoracle.co.uk (Market Oracle Ltd). All rights reserved.

Nadeem Walayat has over 20 years experience of trading, analysing and forecasting the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication. We present in-depth analysis from over 150 experienced analysts on a range of views of the probable direction of the financial markets. Thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk

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 trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.

Nadeem Walayat Archive

© 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