Just when the bulls began snorting and kicking their way into crude oil, the bears capitalized. That’s because the price of crude oil fell more than 5% from Sept. 28 to Oct. 6.
Since then, the bulls have taken back the ball. And if you read through the headlines, you’ll see that the bulls still have the upper hand.
Get this …
China can’t be happy to read that satellites have been tracking the amount of crude oil the country has been putting into storage. As crazy as that is, the tape suggests China isn’t putting away as much oil as their official statistics suggest.
Analysts say that means China’s refineries are running more crude oil through their facilities. In other words: Chinese oil demand could be greater than many believe.
Bulls, you’re welcome!
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| Barclays analysts recently wrote that ‘If satellite data are accurate and reflective of broader activity in the Chinese oil sector, this is bullish for oil fundamentals.” |
At the same time, India is being given its share of the limelight …
Even though 2017 has been disappointing for India’s crude oil demand, the bad fortune crimping its economy this year will give way to a 2018 that sees India’s demand rising significantly. The country’s crude demand hit a record 4.83 million barrels per day in September.
Let’s not forget the future of OPEC production cuts remains uncertain. But the intentions of major players like Saudi Arabia are pretty clear: Keep the price of crude oil supported!
At the same time, the U.S. rig count has turned down again for several consecutive weeks. In fact, the extent of last week’s reduction in rigs surprised most analysts.
For all these reasons, and then some, I’ve been bullish on crude oil and I remain so.
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But I would also caution you that, the more one-sided the sentiment becomes, the sooner this bull run comes to an end.
Where it stops will determine where it goes …
I think the next stop is $55 per barrel. After that, depending on the pretense explaining the rally, I might look for crude oil to reach as high as $60 per barrel.
Either way, somewhere between $55 and $60, the bears are likely to smell blood.
According to the CFTC’s Commitments of Traders report on crude oil futures, the bulls are firmly in control. But their bets have not quite yet reached a level that argues for an imminent decline in price.
But believe me: It will come.
That’s because today’s crude oil market is a wonderful example of how prices impact fundamentals … and how those, in turn, impact prices.
Bears are still holding onto their biggest trump card: U.S. shale production.
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The further oil rises above $50 per barrel, the greater the incentive for U.S. shale to turn the spigots back on. And when that happens, it will arrest the bull run … and prices will come down.
It’s too early to tell how far price could fall, because prices are still going up.
But as soon as the bulls give in, I’ll let you know just how far the bears can drag down oil prices.
In the meantime, if you’d like to play for a potential 5% to 15% rally in the coming weeks, consider buying the ProShares Ultra Bloomberg Crude Oil ETF (UCO) that’s designed to move twice as fast as the underlying price of crude oil.
Do right,
JR Crooks
{ 4 comments }
We are in for a boom in the kondratieff cycle that we are in. The economic cycle is prosperity, recession, depression, and improvements cycle that we are in. Boom, recession, depression, recovery and growth is the waves that the 7 to 12 year jugular cycle moves in. We might even be in a kitchin cycle, a 40 month short term investment cycle. What we know for sure is that we are not in a Kuznets cycle. We are living in times of piece. We have a sweet boom on the way. This boom will be even bigger than the last boom. What’s gonna happen to the price of black gold, ie Brent crude oil. Are we gonna see a bull market in it? I am hawkish about interest rates, I think we will see more quantitative easing by the federal reserve. Its been very successful so far in bringing an end to the credit crunch. Let the boom begin and a sweet boom at that. Boom, recession, depression, recovery and growth is the economic cycle that we are in.
If oil is as strong as your stating, then why are the drillers, SLB, HAL, DVN getting slaughtered, along with 1 oil company APC??
JR…………….I think you are correct on your analysis to the end of 2017.
What are your thoughts on the drilling and fracking for oil causing earthquakes??
Now there’s a story worth investigating……….oil $150/bbl anyone?
Bob
By 2020 the world will be burning the equivalent of 40 Olympic size swimming pools each and every day. The point is at this burn rate will we reach the supply demand price triangle and if so when ?