Oil is trading just below US$119. That’s almost a 20% decrease since its high.
If you’re following the oil price closely, you’ll know that the market is one-eyed at the moment. It has picked oil demand as the indicator to rise and fall on.
We know this…because traders are ignoring most other things. Neither a tropical storm in Texas nor looting attacks in Nigeria triggered spikes on crude oil prices. They’re both key oil precincts.
And the same day that Iran tested a new missile in the Persian Gulf, a barrel of the slick stuff dropped below US$120.
Yes, the main price driver now of is lower demand from developing and emerging countries. Many of those countries were subsidizing their energy prices. This maintained artificially low petrol pump prices. That created an excess of demand.
More and more those countries are giving up this practice. And petrol pump prices spiked since June: +30% in Vietnam and Indonesia, +16% in China, +19% in India.
Investors are also worried by the slowdown in developed countries, mostly the US and in Europe. The IEA (International Energy Agency) is now forecasting a consumption decrease of 600,000 barrels a day from next year in those rich countries.
As for the charts?
Technically, the price should fall lower. As we said in our last update (July 22), the first support of the price correction was the level of $120. It’s now broken.
The 50-day technical momentum indicator has plunged under the 100-level and clearly shows that the developing price action is oriented toward negative territory.
The 14-day RSI confirms this and shows that oil is not oversold. The current bearish countertrend can extend further.
Remember that the price action has crossed below the medium-term support line that was valid since February. It has been tested and validated several times (points A, B, C and D). The rally drove prices from $85 to $148, a rise of 74% in only 5 and a half months. The breakout of this medium-term support line is a clear bearish signal. And the break below $120 confirmed this bearish move.
Consequently the next targets are around $111, $98…and the main one is around $83. In short, the slide has further to go.
[Please note: neither the authors nor any of the employees of Port Phillip Publishing own shares in any of the stocks discussed in Money Morning. The articles do not give trading or personal investment advice, but are intended to provide a useful, independent news and analysis service to supplement your own investing and trading. Consult your financial advisor before making any investment decisions.]
