Oil Forecast December 29, 2011, Technical Analysis
Light Sweet Crude
The CL contract had a bearish day for Wednesday as the markets sold off. The $100 level has shown itself to be resistive yet again, and the anticipated breaking out of the potential bullish flag didn’t happen. The report we gave you yesterday shed a bit of doubt on it happening, but it should be said that the structure for a bull flag is still there.
The downward channel and the $100 resistance area have held true as shown on the attached chart, and the channel seems to be the way to think about this market overall. The main reasons for the fall are varied, but one of them is definitely the Dollar rising against most currencies during the session. Also of note is the fact that the Saudis said they would be willing to pick up production if the Iranians cut of the Strait of Hormuz. Adding to the doubt about the Iranians doing this is the Admiral of the Persian Fleet of the US Navy was quoted as talking about how “stupid” that move would be. It is obvious the Americans wouldn’t hesitate to get involved in a move like that, and that means it isn’t going to happen.
The Brent markets were bearish as well during the session as the selling was across the board in the energy markets. The $110 level seems to have held, and the market fell from that point. The pair looks a bit heavy at this point, and the selling of this market is probably the correct way to go going forward.
The Dollar should continue to see a bid, and this could continue to weigh on the market. The demand for oil is slowing down as well, and the United States has seen 8 straight months of declining driving by consumers, and this should continue to push prices lower over time. The demand for oil just isn’t there, and the market seems to be pricing oil based more upon headlines than any real amount of demand. Unless the Iranians do something truly dangerous, there is a good chance the next several days could be weak in this market.