Best of the Week
Most Popular
1. US Housing Market Real Estate Crash The Next Shoe To Drop – Part II - Chris_Vermeulen
2.The Coronavirus Greatest Economic Depression in History? - Nadeem_Walayat
3.US Real Estate Housing Market Crash Is The Next Shoe To Drop - Chris_Vermeulen
4.Coronavirus Stock Market Trend Implications and AI Mega-trend Stocks Buying Levels - Nadeem_Walayat
5. Are Coronavirus Death Statistics Exaggerated? Worse than Seasonal Flu or Not?- Nadeem_Walayat
6.Coronavirus Stock Market Trend Implications, Global Recession and AI Stocks Buying Levels - Nadeem_Walayat
7.US Fourth Turning Accelerating Towards Debt Climax - James_Quinn
8.Dow Stock Market Trend Analysis and Forecast - Nadeem_Walayat
9.Britain's FAKE Coronavirus Death Statistics Exposed - Nadeem_Walayat
10.Commodity Markets Crash Catastrophe Charts - Rambus_Chartology
Last 7 days
Is Stock Market Setting Up for a Blow-Off Top? - 29th May 20
Strong Signs In The Mobile Gaming Market - 29th May 20
Last Clap for NHS and Carers, Sheffield UK - 29th May 20
The AI Mega-trend Stocks Investing - When to Sell? - 28th May 20
Trump vs. Biden: What’s at Stake for Precious Metals Investors? - 28th May 20
Stocks: What to Make of the Day-Trading Frenzy - 28th May 20
Why You’ll Never Get Another Stimulus Check - 28th May 20
Implications for Gold – 2007-9 Great Recession vs. 2020 Coronavirus Crisis - 28th May 20
Ray Dalio Suggests USA Is Entering A Period Of Economic Decline And New World Order - 28th May 20
Europe’s Coronavirus Pandemic Dilemma - 28th May 20
I Can't Pay My Payday Loans What Will Happen - 28th May 20
Predictive Modeling Suggests US Stock Markets 12% Over Valued - 27th May 20
Why Stocks Bear Market Rallies Are So Tricky - 27th May 20
Precious Metals Hit Resistance - 27th May 20
Crude Oil Cuts Get Another Saudi Boost as Oil Demand Begins to Show Signs of Life - 27th May 20
Where the Markets are heading after COVID-19? - 27th May 20
Silver Springboards Higher – What’s Next? - 26th May 20
Stock Market Key Resistance Breakout Is Where the Rubber Meets the Road - 26th May 20
5 Ways To Amp Up Your CFD Trading Today - 26th May 20
The Anatomy of a Gold Stock Bull Market - 26th May 20
Stock Market Critical Price Level Could Soon Prompt A Big Move - 25th May 20
Will Powell Decouple Gold from the Stock Market? - 25th May 20
How Muslims Celebrated EID in Lockdown Britain 2020 - UK - 25th May 20
Stock Market Topping Behavior - 24th May 20
Fed Action Accelerates Boom-Bust Cycle; Not A Virus Crisis - 23rd May 20
Gold Silver Miners and Stocks (after a quick drop) Ready to Explode - 23rd May 20
3 Ways to Prepare Financially for Retirement - 23rd May 20
4 Essential Car Trade-In Tips To Get The Best Value - 23rd May 20
Budgie Heaven at Bird Land - 23rd May 20
China’s ‘Two Sessions’ herald Rebound of Economy - 22nd May 20
Signs Of Long Term Devaluation US Real Estate - 22nd May 20
Reading the Tea Leaves of Gold’s Upcoming Move - 22nd May 20
Gold, Silver, Mining Stocks Teeter On The Brink Of A Breakout - 21st May 20
Another Bank Bailout Under Cover of a Virus - 21st May 20
Do No Credit Check Loans Online Instant Approval Options Actually Exist? - 21st May 20
An Eye-Opening Perspective: Emerging Markets and Epidemics - 21st May 20
US Housing Market Covid-19 Crisis - 21st May 20
The Coronavirus Just Hit the “Fast-Forward” Button on These Three Industries - 21st May 20
AMD Zen 3 Ryzen 9 4950x Intel Destroying 24 core 48 thread Processor? - 21st May 20
Dow Stock Market Trend Analysis and Forecast - 20th May 20
The Credit Markets Gave Their Nod to the S&P 500 Upswing - 20th May 20
Where to get proper HGH treatment in USA - 20th May 20
Silver Is Ensured A Prosperous 2020 Thanks To The Fed - 20th May 20
It’s Not Only Palladium That You Better Listen To - 20th May 20
DJIA Stock Market Technical Trend Analysis - 19th May 20
US Real Estate Showing Signs Of Covid19 Collateral Damage - 19th May 20
Gold Stocks Fundamental Indicators - 19th May 20
Why This Wave is Usually a Market Downturn's Most Wicked - 19th May 20
Gold Mining Stocks Flip from Losses to 5x Leveraged Gains! - 19th May 20
Silver Price Begins To Accelerate Higher Faster Than Gold - 19th May 20
Gold Will Soar Soon; World Now Faces 'Monetary Armageddon' - 19th May 20

Market Oracle FREE Newsletter

Coronavirus-stocks-bear-market-2020-analysis

What Can We Infer From the Crude Oil Price to Oil Stocks Ratio?

Commodities / Crude Oil Nov 05, 2013 - 05:40 PM GMT

By: Nadia_Simmons

Commodities

The first days of the new month have been hard for oil bulls. After the breakdown below the lower border of the declining trend channel the buyers didn’t manage to stop oil bears. The bears showed their claws on Thursday and pushed the price below the October low. This event resulted in a heavy decline, which took light crude below $95. On top of that, yesterday we saw further deterioration and crude oil dropped to a new monthly low of $94.06.


The selloff in crude oil has been fueled by rising U.S. stockpiles, which have climbed roughly 8% over the past six weeks as refiners have curbed their crude processing amid seasonal maintenance work and waning gasoline demand. Last Wednesday, the U.S. Energy Information Administration said crude inventories rose by another 4.1 million barrels in the week ended Oct. 25. Total inventories now stand at 383.9 million barrels and government data this week could show that stockpiles finished October at their highest level since 1930.

Taking the above into account, we can conclude that crude oil has traded lower as traders view the market as adequately supplied. Even output declines in OPEC member Libya, home to Africa’s largest oil reserves, have not contributed much upside to oil prices.

Yesterday, light crude extended losses as ongoing concerns over rising U.S. inventories and weaker demand in the world's largest oil consumer drove prices lower. In this way, the price dropped to a new four-month low of $94.06. Taking this fact into account, investors are probably wondering where the final bottom of the current correction is.

In today’s essay we take a closer look at the chart of crude oil from the medium term perspective to see if there’s anything on the horizon that could drive the price of light crude higher (charts courtesy by http://stockcharts.com).

Looking at the above chart, we see that the price of crude oil declined once again in the previous week and dropped below $95. Yesterday, we saw further deterioration and light crude hit a new monthly low of $94.06. In this way crude oil slipped below the 50% Fibonacci retracement level based on the entire June 2012-August 2013 rally. However, the breakdown is not confirmed at the moment. With this downward move the price reached the medium-term support line based on the September 2012 and January 2013 highs. If this support line encourages oil bulls to act, we may see a pullback in the near future. On the other hand, if they fail and crude oil declines once again, the next target for the sellers will be the medium-term rising support line based on the June 2012 and April 2013 lows (currently around $93 per barrel). From this perspective further decline seems limited.

Having discussed the medium-term outlook for crude oil and oil stocks, let’s move on to
the oil to oil stocks ratio. Is it possible that will give us some interesting clues?

Looking at the above chart, we clearly see that from the end of August the ratio has declined and reached the long-term support line in the recent days. Additionally, the RSI dropped to its lowest level since June 2012 and now it’s extremely oversold.

Back then, such a low value of the indicator had a positive impact on light crude. After the RSI moved below the 30 level, we saw a pullback in the ratio in the following days. What’s interesting, this increase coincided with higher prices of light crude.

When we take a closer look at the above chart, we clearly see that there have been many similar situations in the past. In October 2012 and then in November a pullback in the ratio triggered a pullback in crude oil. Earlier this year, we saw such price action too. In March,       when the RSI dropped below the 30 level and then moved higher, we also saw increases in the ratio and in crude oil.

In June, the ratio dropped below the short-term declining support line based on the November 2012 and March 2013 lows, but this deterioration was only temporary. In the following days, we noticed a sharp pullback, which pushed higher not only the ratio, but also light crude. Back then, it resulted in the June-August rally.

As mentioned earlier, in the recent days, the ratio has dropped to the long-term support line, which is an important support level. Taking into account the price action that we’ve seen in the past, it seems that a bigger pullback in crude oil is just around the corner. If history repeats itself once again, higher levels of the ratio will likely trigger a pullback in crude oil in the following days as well.

Summing up, although the situation is bearish from the medium-term point of view, light crude almost reached the medium-term support line, which may trigger a bigger pullback. Additionally, the oil to oil stocks ratio is at an extreme low, as indicated by the RSI. This could very well result in the end of the underperformance and strong performance of crude oil.

Thank you.

Nadia Simmons

Sunshine Profits‘ Contributing Author

Oil Investment Updates
Oil Trading Alerts

* * * * *

 

Disclaimer

All essays, research and information found above represent analyses and opinions of Nadia Simmons and Sunshine Profits' associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Nadia Simmons and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Nadia Simmons is not a Registered Securities Advisor. By reading Nadia Simmons’ reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Nadia Simmons, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules