Oil Forecast December 30, 2011, Technical Analysis

Light Sweet Crude

The CL contract fell originally during the session as the “risk off” trade continued. However, in the US session, the risk trade found a bid, and the market recovered to form a bullish hammer. While the downward channel is still intact, this does show just how much fight there is in the bullish side of this market, and that any move down won’t be in the form of a meltdown.

The sell off on Wednesday was predicated on the Iranian situation cooling down with both Saudi Arabia and the United States willing to do whatever it takes to keep the flow of oil going throughout the global economy. The recent price action does suggest that the $100 mark is going to be a “center” that attracts a lot of bids and offers as well, and we think this is the start of a serious debate about the future of oil. However, with the 30^th being the last trading day before the year – we don’t expect any major decisions to be clear right away.

Brent

Brent fell as well during the Thursday session only to pop back up and form a hammer sitting just above the $107.50 level. The Brent markets aren’t as dynamic as the Light Sweet Crude presently as they are essentially consolidating sideways between the holidays. The market will of course be subject to headline risks, but the next couple of trading days could be fairly quiet as we wind down the year and traders will probably be gone for a few days in January as well.

The situation in Iran could always flare up, but the reality is that the Iranians do not want a real war with either the United States or Saudi Arabia, and as such this current drama should abate somewhat going forward. With the lack of serious demand, it is very possible that the market will struggle to make large gains over the next several months as well. We believe that consolidation is probably going to be the tone for this market going forward.