OPEC would like to see a lower oil supply.
At the end of November, OPEC met to maintain an agreement to cut oil production. Such an agreement has existed since the beginning of the year. In the course of the oil price, however, you can see that the prices reacted only with a delay. The oil price has only been rising again since July this year. This does not correspond to the usual seasonal trend. The seasonal price pattern looks as follows: The oil price rose regularly between March and September. A price correction then occurred from October to February.
Whether seasonal patterns for the oil price are still valid can be doubted. Every seasonal pattern is based on fundamental criteria. These criteria are similar year after year. For example, winter is a season in which a particularly large amount of heating oil is required. The market participants bet on this by estimating the amount of oil consumption. But seasonal patterns are also based on how oil is extracted. In this regard, there are fundamental changes in the oil industry.
Oil production via fracking has become a political weapon
The oil industry has changed because production via fracking has completely restructured the market, Basically, oil extraction using the fracking method is more expensive than simply pumping it up out of the ground. The majority of analysts assume that the limit for the oil price is around $ 40. This means that as soon as the oil price rises above this limit, the fracking industry starts production. Over the years, the fracking industry has been able to achieve great flexibility with the help of technical progress. Depending on the oil price, companies can ramp up or down production in a short time. In addition, the oil price, from which fracking is worthwhile, has steadily decreased.
Two mechanisms therefore have an effect on the oil price. As soon as the oil price falls too much, OPEC reduces oil production to achieve a shortage. As a result, the price rises. On the top there is the mechanism that the fracking industry produces new oil starting at $ 40. With this expanded offer, the oil price will be throttled. It can therefore be assumed that the maximum amount of the oil price will be limited in the future.
It is also remarkable that not all oil-producing countries adhere to the OPEC agreements. Some states produce more oil because they urgently need revenue. This also leads to an increased supply of oil and is depressing prices.
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Oil has a political impact
In the past, the fracking industry used to be a limit price of $ 100 per barrel. A little later there was only talk of $ 80. In the meantime, good profits are likely to be made from as little as $ 50. This even has a political impact, because Islamic terrorism is paid for with oil through hidden channels. It is therefore reasonable to assume that the lower the oil price, the lower the terrorist financing.
It is clear that the US government directly supports the fracking industry. American oil production would probably always keep productivity high to limit the political influence of Arab oil. Experts believe that if the oil price were to rise to $ 60 or more, the Americans would flood the market with oil. This will counteract any efforts by OPEC to maintain price stability.
Are the forecasts still correct?
The oil industry is assuming that oil consumption will continue to rise. The mathematical calculations promise an annual consumption increase of almost 2%.
Image: Consumption forecast for crude oil
Source: BP Statistical Review of World Energy
Der Looking into the future is fraught with uncertainty. What was still valid in the past decades can change radically in no time. The very fact that many governments rely on electromobility in major cities will bring about changes in oil consumption. There is also a technological advance in renewable energies. For example, energy generation from solar cells is becoming increasingly effective. The same can be expected for wind energy. The wind turbines already have a completely different design than when they started generating wind power. The goal must be to maximize effectiveness.
Trend analysis of crude oil
The crude oil has been moving sideways for a little more than two years. The bottom chart shows the largest crude oil ETF with the symbol (USO). This ETF is ideal for long-term analysis. The oil price is typically determined using a futures contract. However, this has the disadvantage that it only has a short term and the trading volume is irregular. Therefore, the USO is better suited for a technical analysis.
Image: Long-term chart of the oil ETF with the US symbol USO
The ETF has a recognizable trading range between $ 9.50 and $ 12. This is a relatively narrow range where the price can move a little over 20% up or down. The fact that the price is currently at the upper limit suggests that a new downward movement is pending.
In the chart it can be seen that the upper limit line has already been touched twice. The RSI was able to reach a maximum of 56 and 57. At the current high, the RSI is 68. This is a significantly higher value, which suggests that the touch of the upper boundary line must be evaluated differently. The force with which the upper line was reached is stronger than with the price waves before. Therefore, the next downward move could only be a short-term consolidation. This would not reach the $ 9.50 floor. Rather, a subsequent attempt to break out is within the realm of possibility.
The rough trend picture looks as follows:
Long-term trend on a monthly basis: flat
Medium-term trend on a weekly basis: long
Short-term trend on a daily basis: long
The short-term trend looks technically exhausted. In terms of functionality, the trend is still intact, but the strength should no longer be sufficient to break the resistance of the sideways market.
It is always advisable to consider the trend from several time levels. From the current point of view, the price is not to be rated entirely bearish. One can assume that at least one attempt to break out of the trading range would have to be attempted in the next few weeks or months. A specific statement at the time is not possible. The price will probably need an impulse from OPEC.
Image: Daily chart of WTI oil in US dollars
Short-term analysis of the oil price
A short-term trend can be seen in the daily chart. However, the trend is not as stable as it appears on the surface. The reason for this arises from the fact that the complete upward movement lies in a limited trading range. This means that the short-term upward movement is only part of the sideways market. Therefore, the short-term upward trend can only be of secondary importance. The situation changes immediately if the price exceeds $ 60.50. In this case, there would have been a fundamental change in the oil price. However, there is a higher probability that the price will fall in future, as you know, there is no absolute certainty on the stock exchange. That's why I see a new signal for a long exposure when the $ 60.50 mark is exceeded. Ideally, there is also the stop loss of a short position.
Short recommendation: WTI oil
Price information for WTI oil Price target: US $ 53 - Interim target: $ 55 Stop loss: $ 60.50
If you want to benefit from the short-term stock recommendation, you can buy the stock buy directly or work with derivatives. Note that derivatives include leverage and therefore increase the profit and loss potential. In extreme cases, a total loss is even possible.
Stop loss: The stop loss is initially set as an initial stop and has the function of a maximum loss limitation.
Price target: The price target is the Exit point for the forecasted market movement.
Stopover: When the stopover is reached, the position is in profit. At this point we take a partial profit and we sell 50% of our position. At the same time, the stop loss is adjusted to the personal entry price. This enables us to close our position without loss, even if the market later turns against us.