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3 Apr 2015
Near-term upside risk for Oil – BBH
FXStreet (Barcelona) - Mark Chandler, Global Head of Currency Strategy at Brown Brothers Harriman, notes that according to technicals, the mid-March lows of oil is not yet confirmed, as such near-term upside risks lie for oil.
Key Quotes
“The price oil traded higher after putting a low in late January near $43.60 on continuation basis. The high was put in a few days later near $54.25. It traded broadly side ways through the first week in March before breaking down against and hitting $42.00 on March 18. It reached a high last week of almost $52.50. It retraced about 50% of that bounce and found support near $47.25.”
“Looking at a weekly chart, the lows in prices seen in mid-March were not confirmed by technical indicators such as the Relative Strength Index (RSI) or Moving Average Convergence Divergence (MACD). This is what technicians call a bullish divergence. It would suggest a near-term risk to the upside.”
“This fits in nicely with the recent news stream that includes the first weekly decline in US oil production since January and the Energy Information Administration (EIA) of the Department of Defense, which anticipates that 3 of the 7 shale areas are likely to see a decline in output this month.”
“However, the ultimately low in prices may still lie ahead.”
“..downside risk for spot crude is the excess output that is filling up storage capacity. There is a debate about how much unfilled storage capacity remains, but the fact that the cost of storage has risen suggests a real or anticipated shortage. US crude inventories are at their highest level since records were kept beginning in August 1982.”
Key Quotes
“The price oil traded higher after putting a low in late January near $43.60 on continuation basis. The high was put in a few days later near $54.25. It traded broadly side ways through the first week in March before breaking down against and hitting $42.00 on March 18. It reached a high last week of almost $52.50. It retraced about 50% of that bounce and found support near $47.25.”
“Looking at a weekly chart, the lows in prices seen in mid-March were not confirmed by technical indicators such as the Relative Strength Index (RSI) or Moving Average Convergence Divergence (MACD). This is what technicians call a bullish divergence. It would suggest a near-term risk to the upside.”
“This fits in nicely with the recent news stream that includes the first weekly decline in US oil production since January and the Energy Information Administration (EIA) of the Department of Defense, which anticipates that 3 of the 7 shale areas are likely to see a decline in output this month.”
“However, the ultimately low in prices may still lie ahead.”
“..downside risk for spot crude is the excess output that is filling up storage capacity. There is a debate about how much unfilled storage capacity remains, but the fact that the cost of storage has risen suggests a real or anticipated shortage. US crude inventories are at their highest level since records were kept beginning in August 1982.”