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Ole Hansen
While WTI crude has continued to be on the defensive, Brent has been trading upwards with potentially the best month since May 2009. Natural gas has also had two stories to tell this week - in the US it's fallen 9% while UK gas is up around 5%. Saxo's Ole Hansen looks at this week's divergence plus gold.
Article / 29 March 2012 at 7:35 GMT

You got oil?

Chief Economist & CIO / Saxo Bank
Denmark

Is oil ready for a second move higher after weeks of sideways trading? We think so.

Saudi Arabia claims they have oil to ship as seen in interview in Financial Times yesterday: Saudi Arabia will act to lower soaring oil prices. We are more sceptical due to the following two charts:

Oil Production Saudi Arabia

Source: Bloomberg LLP

The trend for their claimed capacity also clearly falling:

Oil capacity

Source: Bloomberg LLP

So yes there is same room to up the production, but probably not if the spike is based on increased geo-political tension. This headline caught our eye this morning: Israel Defence Forces remain on full alert over Passover The article goes on to say this is merely a new operational procedure, but also that even soldiers inside the Israeli army think its sign of increased alertness.

We are not trying to predict military action, but it is increasingly likely that energy prices will come to the focus with or without the Middle East component as price levels now starts to exceed old highs:

EIA Energy Information

Source: US Energy Information Administration

Meanwhile gasoline prices in the US are getting closer and closer to old highs, and exceeding old highs do matter, according to academic papers.  They mean less disposable income and waning consumer sentiment.

Finally, on the charts (this is WTI Crude) we are nearing support levels - one possible trade would be to buy present level with stop 1-2 US dollars below the support seen on the chart.

 

WTI Crude Chart - Bloomberg

Source: Bloomberg LLP

Steen Jakobsen

2y
goldfinger goldfinger
Having spent the day thinking about your piece.
I'd raise a couple of points;
1: At some price point we will get price/demand destruction as affordability becomes a major issue in a global economy that is clearly not thriving. Apparently China is slowing, India has its own growth problems, and let us not think about what is going on in Europe. Spain next to fall off the pedestal?
2:Never mind Saudi, who are now having to push so much seawater into their older wells to get output to higher levels that it is downgrading the quality of their already low quality crude. In fact, I believe Saudi tobe a misnomer.
3: America is growing its production and Cushing is awash with the black stuff.
Why would WTI then be going North? Israel on standby over passover? I don't think Iran is ready to Nuke them just yet. Probably the converse, but does Iran matter? Unless they block the straights!
I was short, changed to long on the back of your article and currently weathering a minor storm.
2y
Steen Jakobsen Steen Jakobsen
Sorry for that Goldfinger. I did point out it was make-or-break at the support level - clearly the sell off came with RISK-OFF - I am still exposed long and feel the pain to... not that it helps you.
2y
Steen Jakobsen Steen Jakobsen
Gas has been selling off ever since the US took to shale gas.. Coal is being "replaced" in countries energy consumption due to.....Green Energy Taxes. Saxo Commodity Expert Ole S. Hansen remains bearish - my call is more tactical against the overall portfolio of risk of.
2y
goldfinger goldfinger
Oddly enough Steen, it came right for me overnight. Partly because I waited I went long at 12190 and then watched it go 12140 and I've just closed at 12240. So, thank you. Have a good weekend
2y
Steen Jakobsen Steen Jakobsen
Gr8! Happy to hear it - nice week-end
2y
JDNeeman JDNeeman
Steen,

Hello, hope you are great!, just a question, have you noted a relationship of price movement on OIL and COT reports, i have made an easy subs-traction from the previous week number report (19-26 MINUS 26-30 OF MARCH) on and it seems that let you now the minimum price move for the week, please could you check on this. thanks.

JDNeeman.
2y
Steen Jakobsen Steen Jakobsen
Sure will - I will have Ole S Hansen look at it - he is our resident expert on COT reports...
2y
Ole Hansen Ole Hansen
Hi JDNeeman, the relationsship between price and the speculative positioning is not an exact science. What it gives you however is valuable information about the potential strength of future moves. Right now the spec position in WTI and Brent has become very one-sided with longs exceeding short by more than four to one. As the attached chart also shows they do go hand in hand and it is worth knowing which way speculators are positioning once a correction sets in. Rule of thumb indicates that 100k change in speculative position normally triggers a 5-10 dollar move in price.

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