For those of you who've been wondering about the whether's of oil prices on the futures markets... I posted this over at Downstreamer's Forum but thought you all might like to see it also.

A technical analysis of the price chart actions for Oil on the NY Merc.

And yes, I'm going out on a limb again. Hey, put that chain saw down. I've not even given my forecast yet.

The crude oil market continues to look strong on a technical basis. Both the March and April contracts still showed healthy price-chart formations and technically it looks like Friday's action set the stage for a new "leg" going up on the market. This should now set the stage for a technically "healthy" price push above the $30.00 level on the market. The Directional Movement Index with ADX is still bullish on three levels:

Daily Bar Charts Weekly Bar Charts Monthly Bar Charts

Weekly chart formation appears to be indicating a "flag" was formed signalling a move to about the $31.00 to $32.00 level. Flag formations will usually complete it's full measurement capacity (about 80% of the time) and the Weekly Charts "flag" pattern of measurement for the move suggests a run to the $31.00 level probably within the next 2-3 weeks IF it follows thru. The Flag-pole itself is about $5.00 in length basis the April, 2000 contract. Taking that length and linking it to the bottom price point of the flag at about $26.00 indicates that adding $5.00 to the $26.00 would give you about a $31.00 level within the April Contract.

The oscillators like the DMI also suggest this as the positive line had been dropping of late on the Daily chart basis but Friday's action reversed the downward trend and the main ADX trendline had not dipped, so the bullish trend does seem to be intact. This means the positive line downward movement was simply normal profit-taking in a healthy bullmarket movement. Meanwhile the bearish negative-price line continues to bounce on the bottom area with little indication of a reversal of trend to a "short-selling" opportunity.

Friday's action also is bullish because it closed at a 45 bar high which is very bullish and increases the likelihood for higher prices ahead.

The Commodity Channel Index oscillator just recently gave a "buy" signal and it generally will miss the first part of a price move. This tells me that we've got a LONG ways to go before prices top out. The CCI has been known to give a buy signal after the market has made a third of its price move. If the CCI history holds up it means that there is probably another $10.00 left in the move, which means a movement to the upper $30's level and probably over the course of the next several weeks I would suspect.

The MACD has still not issued a new "buy" signal yet which means again that this market is likely to see significant price gains yet and thus confirming the CCI, the DMI and the flag formation measurement.

VOLUME Indicators ... with the mkt putting in a new 45 bar high and a 9 bar high and volume increasing, this too is signalling more new highs yet to come in Crude.

Some of the oscillators are showing that the Crude is a little overbought here, but that doesn't necessarily mean much in the kind of market atmosphere as we have now. Under current conditions, oscillators tend to show overbought conditions far sooner than the market actually remedies the "over" situation.

Look for oil prices to continue to climb on a technical basis.

ON A FUNDAMENTALS Basis:

The news on Friday that Saudi Arabia is cutting shipments to the USA by 25% in March is also bound to be very bullish for the Crude pricing. This development could turn out to be a driving fundamental factor for trading on Monday and perhaps provide underlying support for the entire week of trading.

Frankly, it sure looks to me like those anonymous sources from Saudi Arabia were right on target... and also too those anons in the USA that folks were reporting on.

One thing to note about Saudi Arabia. They've always been very, very conscientious and jealous about maintaining market share. They don't want to lose even 1 percentage point of market share. Of course, this is true for the whole oil industry which really values share of mkt. SO, why would they now risk losing market share? I have thought of 3 possible explanations.

1. Y2K problems have reduced output capabilities. They don't want or can't admit to Y2K problems.

2. Something is afoot in regards to a Middle East Peace geopolitical development. (Maybe another war is brewing between Israel and Arabs)

3. The Saudi's somehow simply want to ratchet up the price of oil to still higher levels so that they can stimulate new competition from old fields which can only be economically redrilled and pumped with higher prices.

The #3 notion is the most ludicrous. By deliberately keeping the prices higher, they risk newer sources of oil from old fields that couldn't make a profit at $25.00 a bbl, but at $30/$35+ they suddenly become profitable. They also risk losing market share to competing countries like Venezuela and Mexico. No, this idea just doesn't make sense. The first two possibilities are the only ones that make sense.

Gee it would sure be nice if Dog Gone or somebody could get a hold of that IT fellow who went back over to Saudi and see if he could shed any further light on the subject.

[Note: My comments are not intended as trading advice nor as recommendations. These are simply my own observations and opinions which can certainly be wrong at times]

-- Dick Moody (dickmoody@yahoo.com), February 13, 2000

Answers

Thanks Dick for your post. What do you think of the announcement that the Saudis are going to cut Europe & Asia by 35-40%? Just guessing on my part - I would imagine that will have a HUGE impact on the market! I also wish Dog Gone would check in here - and DDlst light, PA Engineer....and anyone else that has contacts actually within the oil industry. Again, thanks for your analysis.

-- jeanne (jeanne@hurry.now), February 13, 2000.

Thanks, Dick. The part I find intriuging is Saudi's cutback. In one article I read Secretary Richardson claimed something to the effect that, "Ahh, it won't matter much to overall output levels." Unless I'm missing something, we're already BELOW the output levels needed to stabilize price and inventories in the US. We're already at 13 year lows for gasoline inventory. So cutting back **another** 25% on one of our biggest contributors suddenly isn't anything to worry about? Okie dokie. The spin machine is a beautiful thing, isn't it?

I have to agree with you from a layman's perspective that option 3 (above) for the Saudis is suicidal for market share. The reason for their cutback has not been made clear in any articles I've read - another strange phenomenon. You would think they would at least lie and say something like, "We think there's an oil glut worldwide and that prices are too low." Instead, nothing.

That makes me suspicious that they won't even bother to lie.

The action is also strangely consistent with the notion that they have - gasp - flow control problems. If they can produce at will, and they won't come to the aid of a distillate strapped eastern US, and a propane strapped midwest, and they won't take advantage of 30 dollar March contracts, maybe 35 dollar April contracts soon, then what does that say? It's bizarre.

They may be trying to force a war - that is the only other option I can see. Let's face it, the US is being hurt and what kind of reputation do we have for settling international disputes? Bombs away. It's in our, "national interest". I can hear it now.

Anybody doing their homework knows we may have a gasoline shortage in the spring and summer in the US. That is not life as we know it. That could kill our economy and kill Algore's chances for the Big Time. If he/they cannot even turn this around during an election year, then that tells you that it's out of the realm of PAYOFFS and political skull drudgery - another ominous sign pointing to technical problems in production.

The Kuwatis also said they will not boost production and they know we need it. We are the country that, "rescued" them and they won't even boost production a teentsy for George Bush Senior? Are they that faithful to OPEC? And with Saudi cutting back, why can't they boost it just to keep the barrels per day OPEC level even in march?

Either they can't due to technical problems or they are trying to start a war. It can't logically be because they want to make more money because that tack means they risk ALL - EVERYTHING by pushing the US into recession and bombing mode.

The bottom line for me is that price may not even be the issue, considering that it's already in a healthy place for OPEC. The issue is availability, and the availability is not there - it's not enough to allow us to gobble our obligatory 20mbpd for the next millenium. World production has peaked (1995) and maybe they are now forcing us to recognize the limitations that have always been there with a natural and finite resource that will run out some day. Maybe this is the beginning of a new era where we can expect 40 bucks a barrel to be the new benchmark in a year or two. This would force us to retool our whole way of life - something the Saudis may see as necessary to the survival of their own way of life for the long haul.

-- paul leblanc (bronyaur@gis.net), February 13, 2000.

If this forces us to start conserving, its better late than never. Shortly after the oil embargo there were Federal and State solar energy credits. A huge industry sprung up overnight in Arizona and there were dozens of solar hot water heaters installed because the credits were generous. Those credits disappeared after a few years. I guess the message was we didn't need to conserve anymore.

In a place like Phoenix or Tucson there shouldn't be a single electric of natural gas hot water heater in place. Did we ever cut our dependence on foreign oil, NOOOOOOOOO. Instead it grew because we knew we could always control the middle east and we would be good buddies forever. We get what we deserve. Or for bible thumpers, we reap what we sow.

-- Guy Daley (guydaley@bwn.net), February 13, 2000.

Dick,

Thank you for sharing your analysis and observations.

Two other options:

4. The "fix" is in - George Herbert Walker Bush - ex-Prez USA - has asked the Kuwaitis and teh Saudis to hold or curtail production until after Nov 2000 election. This to spoil any political future for Algore or Hillary Rodham. Remember the Iranian hostage October surprise.

5. Osama bin Laden may have close contacts with factions in the House of Saud. Saudi Arabia is not a monolithic state but rather a nation of tribes ruled by one family the House of Saud. If other factions have enough power, the House of Saud may have to choose to back some anti-USA positions in order to avoid a civil war/revolution in Saudi Arabia.

Personally I do think that the Oil Patch is experiencing Y2K problems. These were alluded to by the Honeywell embedded systems guy quoted on a thread on Downstreamer's site.

-- Bill P (porterwn@one.net), February 13, 2000.

Dick Moody.

Wise men of the desert,
sit on the dune and ask
"if there are few ships leaving,
but many ships arriving, what are they bringing?"
Friend Yousef says, "if I wanted to know how are things in the House of Saud, I would see what things have changed in imports in recent weeks."
From a friend of a friend of an engineer.

-- sufi (sufi@wandering.in.coastal.sand), February 13, 2000.