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Oil Price May Have Peaked: Technical Analysis

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Oil Price May Have Peaked: Technical Analysis

Izabella Kaminska, Special to CNBC.com | 16 Jul 2008 | 07:24

WTI crude prices may have made or be close to making their highs, a technical report by PVM oil associates said Wednesday.

The top international oil broker said it sees huge resistance at the $146.45 level for WTI, and $147.73 level for Brent. "Recent flirtations with [these levels] have created a large area of range resistance, resulting in failures," the report said.

The outlook follows the second largest decline in dollar terms in the history of the Nymex WTI contract on Tuesday.

The broker said stochastic indicators – comparing the closing level with the recent price range – over the past days had proved valuable technical tools and there were no new targets higher until current levels were closed over.

"I believe the market has now topped," author Robin Bieber wrote. "The market is very vulnerable to serious break down and lower numbers." According to PVM, any rallies to resistance are now clear selling opportunities.

Tuesday’s downside move surprised many in the market. Rob Laughlin, a senior broker at MF global said he had not seen prices move so aggressively in such a short space of time outside war conditions.

"I think we saw banks, funds and trade selling-all enter the market, which should be confirmed by a reduction in open interest," he said.

Zug-based analyst Olivier Jakob at Petromatrix has meanwhile cautioned over current trading volatility.

Intraday volatility on crude oil is starting to get out of control, he wrote Wednesday, adding "we do not think that the higher normality is something that oil trading companies or professional speculators can handle on a longstanding basis."

Jakob expects volatility to rise further still ahead of WTI option expiry this Thursday, adding that $130 a barrel is the key number to fear for August options due to the number of puts on the strike price.

"Any close below $135/bbl will create an additional correction risk on Thursday into the option expiry." Support levels though remain firmly in focus.

Stephen Schork of the Schork Report believes that unless a key level below a 38-50% retracement is broken, it could pose a problem for the bears. "If they cannot break the box, then the bulls will be in a great position to run this market right back up in the bear’s face…like they have been doing, consistently since last September."

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http://www.cnbc.com/id/25699893

Oil Price May Have Peaked: Technical Analysis

Izabella Kaminska, Special to CNBC.com | 16 Jul 2008 | 07:24

Fundamentally on the one hand demand may be falling away .... but on the other Isreal and Iran might just be about to knock seven lumps of sh!t out of each other whilst the $ enters a new bout of weakness. I wouldn't bet either way.

Edited by lufc

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I am leaving the Israeli/Iran situation out of it as its too much of a variable (the US would be crazy to allow the israeli's to do it, the Israeli's can't do it without permission as US funds 90% of their defence budget and would need to give flyover permission etc... then again the iranians are doing their crazt schoolkid bit... go on punch me etc).

So that aside I would stand firmly by my previous view that oil will sink to at around $100 a barrell and stabilse for the forseeable future at that level or thereabouts. Timing is the uncertainty but the drop off may be begining now, after all many speculators have made their money and theres less upside now than downside.

I think the great Goldmans view of $200 dollar oil is miles and miles out and would need a massive international incident to happen... "peak oil" in this debate is also somewhat of a red herring.

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I am leaving the Israeli/Iran situation out of it as its too much of a variable (the US would be crazy to allow the israeli's to do it, the Israeli's can't do it without permission as US funds 90% of their defence budget and would need to give flyover permission etc... then again the iranians are doing their crazt schoolkid bit... go on punch me etc).

So that aside I would stand firmly by my previous view that oil will sink to at around $100 a barrell and stabilse for the forseeable future at that level or thereabouts. Timing is the uncertainty but the drop off may be begining now, after all many speculators have made their money and theres less upside now than downside.

I think the great Goldmans view of $200 dollar oil is miles and miles out and would need a massive international incident to happen... "peak oil" in this debate is also somewhat of a red herring.

Why is peak oil a red herring? If production doesn't grow then the oil market is in trouble, because while it may be at the start of a small decline in western countries, oil consumption is continuing to grow elsewhere, such as the oil-producing countries.

Oil at $100 a barrel in your wet dreams. :P

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Why is peak oil a red herring? If production doesn't grow then the oil market is in trouble, because while it may be at the start of a small decline in western countries, oil consumption is continuing to grow elsewhere, such as the oil-producing countries.

Oil at $100 a barrel in your wet dreams. :P

We'll see whose right.

The reason peak oil is a red herring is that its not really price driving in a headline sense, the concept will have something to do with underlying price but not the highs and lows... eg Iran/Israel, Nigerian resolutions, recession etc will have much more impact on the day to day price than any very long term view. Production and demand is currently pretty much in balance... sure production hasn't got far to go without more investment ... but then again peak oil isn't about how much can be produced its about whether we have reached the limits of how much can be produced AND how much stock there is... production can rise if the conditions are right... only an idiot would claim otherwise... equally only someone who knows nothing about it will have seen the massive sea change in behaviour and technologies thats starting, people are in denial on that... sure the alternatives in many areas are a long way off but the pace of development is faster now than its ever been and getting faster. Some things will I suppose always need oil but its certainly not a pipedream to imagine that WHEN we reach production max demand due to alternatives would have decreased so much that it will have pushed the magical date when we run out of oil out by a couple of centuries.

As for the here and now and the near future thats the other reason why "peak oil" as a current driver should be ignored.... prices have not risen in the last year becasue of "peak oil" or a sudden realisation that we are running out or might be running out ..... prices have rather been driven by all sorts of other factors but "peak oil" certainly isn't one of them..... so I can quite happilly say oil will drop back to around $100 and claim that "peak oil" will have nothing to do with that... if it falls back to $100 it doesn't really change the "peak oil" debate becasue the alternatives revolution has I suspect already a critical mass and at $100 oil will still be high enough to sustain that.

Oil much above $100 in your dreams... if you are betting on it i'd get out now if I were you.

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Why is peak oil a red herring? If production doesn't grow then the oil market is in trouble, because while it may be at the start of a small decline in western countries, oil consumption is continuing to grow elsewhere, such as the oil-producing countries.

Oil at $100 a barrel in your wet dreams. :P

If Oil drops to $100 it would simply hit the present 200-day moving average (ish)

http://stockcharts.com/h-sc/ui?s=$wti...mp;g=0&id=0

though, I agree, I think it is unlikely

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My opinion is that this is just the same as the resistance there was to breaking through the $100 mark, once it was breached the price suddenly shot up. The same will happen again once the $150 mark is breached. I think it will approach and drop back several times before there's one huge push!

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My opinion is that this is just the same as the resistance there was to breaking through the $100 mark, once it was breached the price suddenly shot up. The same will happen again once the $150 mark is breached. I think it will approach and drop back several times before there's one huge push!

I am hoping not obviously, it would then get further and further into bubble/insanity territory.... whilst not an expert I know that there are split opinions out there at the moment and I am currently in the losing bull camp... but I do feel Oil coming back to $100 ish is whats going to happen... perhaps if it breaches $150 that might be less likely..... I suppose we'll have to just wait and see I suppose, it was down quite a bit today at one stage, and unemployment/recession news etc was all on the dampening demand side. But theres no use rationalising the irrational.... of course if the whole Iran/Israel thing hots up that may well delay the return to $100 and if it acually kicks off I may yet have to admit defeat.

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I am hoping not obviously, it would then get further and further into bubble/insanity territory.... whilst not an expert I know that there are split opinions out there at the moment and I am currently in the losing bull camp... but I do feel Oil coming back to $100 ish is whats going to happen... perhaps if it breaches $150 that might be less likely..... I suppose we'll have to just wait and see I suppose, it was down quite a bit today at one stage, and unemployment/recession news etc was all on the dampening demand side. But theres no use rationalising the irrational.... of course if the whole Iran/Israel thing hots up that may well delay the return to $100 and if it acually kicks off I may yet have to admit defeat.

Loads of people were getting prematurely excited last week when it dropped back from the highs, just before it shot up again. I think this could last quite a bit longer, especially while the Yanks are pumping billions of $ into the system!

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I expect the oil price to more than halve over the next 12m.

Just wondering where the next bubble's gonna be.

Edited by gruffydd

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If Oil drops to $100 it would simply hit the present 200-day moving average (ish)

http://stockcharts.com/h-sc/ui?s=$wti...mp;g=0&id=0

though, I agree, I think it is unlikely

I would look for a clean break of the recent trendline just above the 50 day MA IMO. But that might only signal a correction rather than a bear.

Oil was below $80 a year ago, this comes down to more than demand.

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I expect the oil price to more than halve over the next 12m.

Just wondering where the next bubble's gonna be.

I read on the Oildrum recently something to the effect that oil coming on stream is costing somewhere in teh region of $80 a a barrel to produce because of the increased energy requirements. ie the easy oil is disappearing. I'm not saying that all oil costs that much, but this would tend to suggest that you are being a trifle optimistic. :(

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I expect the oil price to more than halve over the next 12m.

Just wondering where the next bubble's gonna be.

Glad you do,because I think this correction is a bear trap.

we might get some easing until september....that's nice.

but then we have the twin storm of the iran situation AND HURRICANE SEASON(forgot about that one didn't you peeps)

apparently this one is going to be above average.

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I read on the Oildrum recently something to the effect that oil coming on stream is costing somewhere in teh region of $80 a a barrel to produce because of the increased energy requirements. ie the easy oil is disappearing. I'm not saying that all oil costs that much, but this would tend to suggest that you are being a trifle optimistic. :(

Quite - so much of the new production has such high costs that if prices fall below a certain point they will simply stop pumping. This is often the case with deep offshore fields or small isolated fieds where only high prices make production economical.

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Quite - so much of the new production has such high costs that if prices fall below a certain point they will simply stop pumping. This is often the case with deep offshore fields or small isolated fieds where only high prices make production economical.

And if you stop pumping an offshore field, you lose it. You can't mothball the infrastructure the way you can on land.

For all the oil cornucopians here, there is a very interesting article and discussion on how oil reserves come to be overstated over at the oildrum. A sample from the thread: http://www.theoildrum.com/node/4311#more

"And, no, Elwood. In 33 years I’ve never seen a company keep two sets of books. I’ve always dealt with public companies and they always threw out the biggest reserve numbers they could w/o getting busted by the SEC (and some actually did get busted). They might secretly talk amongst themselves about how inflated their reserves might be. And don’t even ask me about the scum bag oil promoters I’ve dealt with and the outright lies of exaggerated reserves they would pitch to private investors. For a while I represented such screwed investors. But between the immorality on one side of the table and the ignorance on the other I couldn’t take any more and I no longer play expert witness."

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Quite - so much of the new production has such high costs that if prices fall below a certain point they will simply stop pumping. This is often the case with deep offshore fields or small isolated fieds where only high prices make production economical.

and more bad news from Saudi Arabia:

http://www.cbsnews.com/stories/2008/07/16/...in4264308.shtml

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http://www.bloomberg.com/apps/news?pid=206...&refer=home

July 16 (Bloomberg) -- Crude oil futures fell more than $4 a barrel in New York after a surprise increase in U.S. inventories and as a slowing U.S. economy sapped demand for energy.

Supplies rose 2.95 million barrels to 296.9 million barrels last week, an Energy Department report showed. Stockpiles were forecast to drop 2.2 million barrels, according a Bloomberg News survey. Fuel demand averaged 20.3 million barrels a day in the past four weeks, down 2 percent from 2007, the department said.

``The inventory numbers are starting to reflect the bad macro-economic news,'' said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. ``Not only did we get a surprise build in crude-oil stocks, the products were also up nicely.''

Crude oil for August delivery fell $4.16, or 3 percent, to $134.58 a barrel at the 2:30 p.m. close of floor trading on the New York Mercantile Exchange. Prices are heading for the biggest two-day drop since January 2007.

Oil today fell as low as $132 a barrel, more than 10 percent below the record of $147.27 reached on July 11. A drop of that magnitude is commonly referred to as a correction.

Yet more confusing data.

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We'll see whose right.

The reason peak oil is a red herring is that its not really price driving in a headline sense, the concept will have something to do with underlying price but not the highs and lows... eg Iran/Israel, Nigerian resolutions, recession etc will have much more impact on the day to day price than any very long term view. Production and demand is currently pretty much in balance... sure production hasn't got far to go without more investment ... but then again peak oil isn't about how much can be produced its about whether we have reached the limits of how much can be produced AND how much stock there is... production can rise if the conditions are right... only an idiot would claim otherwise... equally only someone who knows nothing about it will have seen the massive sea change in behaviour and technologies thats starting, people are in denial on that... sure the alternatives in many areas are a long way off but the pace of development is faster now than its ever been and getting faster. Some things will I suppose always need oil but its certainly not a pipedream to imagine that WHEN we reach production max demand due to alternatives would have decreased so much that it will have pushed the magical date when we run out of oil out by a couple of centuries.

As for the here and now and the near future thats the other reason why "peak oil" as a current driver should be ignored.... prices have not risen in the last year becasue of "peak oil" or a sudden realisation that we are running out or might be running out ..... prices have rather been driven by all sorts of other factors but "peak oil" certainly isn't one of them..... so I can quite happilly say oil will drop back to around $100 and claim that "peak oil" will have nothing to do with that... if it falls back to $100 it doesn't really change the "peak oil" debate becasue the alternatives revolution has I suspect already a critical mass and at $100 oil will still be high enough to sustain that.

Oil much above $100 in your dreams... if you are betting on it i'd get out now if I were you.

Some good points there but give us a ceiling for say the end of the year.

I believe Peak oil is real but of course what I believe doenst matter a damn to the oil price.

Whats being pumped at the moment is low-grade stuff and its hard to get at.

The input prices are rising (adding to costs) and its more difficult to refine (further adding to costs).

Either way there wont be any decline in prices at the pumps.

Oil prices are due a fall over the next 6 months for the US elections - any mug can see that - but I'm certain they'll rocket again in the new year.

I'd say as low as $80-100 by Christmas and then 'Boom!', the big spike, a proper spike that will sustain itself for 2-3 years and make us look back at $140 oil as the good ol' days.

.

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Yet more confusing data.

Not really. The essence of Matt Simmons' argument is that we've put too much faith in Saudi Arabia, they can't produce as much as they say and everyone else thinks they can, and that basically we are stuffed. :(

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I'd say as low as $80-100 by Christmas and then 'Boom!', the big spike, a proper spike that will sustain itself for 2-3 years and make us look back at $140 oil as the good ol' days.

There is already serious demand destruction occurring at $140 a barrel; the only way prices much higher than that can be sustained is if the Peak Oilers are correct, or wages inflate substantially. Over 2-3 years the switch to more fuel efficient cars alone will significantly cut oil usage in North America, and increased shipping costs will seriously ****** up the Chinese economy.

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There is already serious demand destruction occurring at $140 a barrel; the only way prices much higher than that can be sustained is if the Peak Oilers are correct, or wages inflate substantially. Over 2-3 years the switch to more fuel efficient cars alone will significantly cut oil usage in North America, and increased shipping costs will seriously ****** up the Chinese economy.

The problem with this analysis is that it seems to assume that transport in the west is the only thing that matters to oil prices.

It isn't.

There is the question of growing car use elsewhere, especially in the oil exporting countries. And then there is global use of oil for agriculture, petrochemocals and the like.

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HURRICANE SEASON(forgot about that one didn't you peeps)...apparently this one is going to be above average.
I'd say as low as $80-100 by Christmas and then 'Boom!', the big spike, a proper spike that will sustain itself for 2-3 years and make us look back at $140 oil as the good ol' days.

It's great there are so many people from the future. Question. I'm going to London next Wednesday. Should I take a coat in case it rains?

The problem with this analysis is that it seems to assume that transport in the west is the only thing that matters to oil prices. It isn't. There is the question of growing car use elsewhere, especially in the oil exporting countries. And then there is global use of oil for agriculture, petrochemocals and the like.

The high external costs of certain foodstuffs and oil is causing major problems in the UK, US and Euro land. Given the recent tightening of belts here to live within high income levels [without any credit lines], surely these pressures are affecting the Central Asian and the Far Easters much harder. A substantial proportion of their income is now been spent on basic necessities such as rice and other basic foodstuffs etc. Can a Chinese person really under the circumstances of comparative low wages be frivolous with expenditure?

And could China unwind, just like its hated neighbour did in the late 1980's. The Shanghai s/index is down 56%, wage demands are 20%, workers want more rights [Vietnams love this] and core inflation is 10%+. High oil costs for transportation and shipping puts a further squeeze on their profitability which is already on very thin margins. Coupled to America's squeeze on high oil prices alone taking over $500bn out of their own expenditure, could cheap tat from China no longer be required by western societies without the need for excesses i.e. $99 flat screen tele's at Wal-Mart etc etc.

Edited by md23040

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