Oil Price Fundamental and TechnicalFundamentals:
Consensus appears to be that we move into clear supply deficit in the fourth quarter. Plenty of inventory sloshing around and the markets odd tendency to monitor US inventory above all others despite US inventory being kept high intentionally by imports means we will be waiting a little while before data on changes to global inventory becomes clear.
All that has to happen here is for the market to decide that the forward direction of prices is clearly upwards and that it might just be a good idea to buy as much oil as soon as possible while it is still cheap. This could happen before the end of this year, if not it will be early next year. At this point we will look back at so called bullish estimates of $60 and wonder what on earth everybody was thinking about - such is the effect of recency bias.
Technicals:
I buy on fundamentals. Years of investigating technical analysis has conviced me that this is the right thing to do, however I still monitor the technical position of markets closely.
There is some debate as to the point of current resistance. Some say it is a little over $52 - recency bias again, I say that it is around $55 - going back to September 2015.
Point and figure chart coming off resistance several times with rising lows. Forget the point and figure aspect for this. We keep hitting the same high, roughly, and then back off to higher lows. The initial low was January, the next was July, we seem to be making a new low now, around $45 or slightly lower would be ideal and perhaps one more slightly higher low after this. A break out from multipe same level highs with rising lows is technically very bullish indeed.
Inverted head and shoulder pattern. The tips of the shoulder were formed in August 2015 and August 2016 respectively. The slightly lower shoulder tip of August 2016 when compared to August 2015 would slightly dilute the case for some purists, but, nevertheless, when this chart breaks above the neckline, $55, the technical case thereafter becomes highly bullish.
Absolute nonsense I can hear many of you say. Actually, it is probably good that you think that as if you tried to make money from a purely technical approach you would almost certainly fail - that was certainly my experience. Trader effects and algorithmic analyis have made technical trading a difficult past time. But not being able to make money from a pure technical anlaysis approach does not mean that technical analysis does not provide some useful support as a secondary consideration to a fundamentals approach.
Anyway, the unfolding case for oil both fundamentally and technically is highly bullish and the oil price will break out above $55 very aggressively in time. When? late fourth quarter would be my guess but it could be sooner, or could be into the new year. No analyis can replace the need for patience.
Doug