Advertise | Bookmark | Contact Us | E-Mail List |  | Update Page | UraniumSeek.com 

Commentary : Gold Review : Markets : News Wire : Quotes : Silver : Stocks - Main Page 

 GoldSeek.com >> News >> Story  Disclaimer 
 
Latest Headlines

Gold Seeker Closing Report: Gold and Silver Gain About 1%
By: Chris Mullen, Gold Seeker Report

Northern Vertex Files Preliminary Economic Assessment Report for the Moss Gold Mine in NW Arizona
By: Northern Vertex Mining Corp.

Does The CoT Structure Prohibit A Rally?
By: Craig Hemke

Harry Dent’s Gold Prediction Invalidated
By: Przemyslaw Radomski, CFA

SELLING OUT OF PRECIOUS METALS AND BUYING BITCOIN…. Very Bad Idea
By: Steve St. Angelo

The Bitcoin Bubble Explained in 4 Charts
By: Jake Weber

VXX Sends an Awesome Message from Another Galaxy
By: Rick Ackerman

Geopolitical Risk Highest “In Four Decades” – Gold Demand in Germany and Globally to Remain Robust
By: GoldCore

Asian Metals Market Update: November-22-2017
By: Chintan Karnani, Insignia Consultants

Gold Seeker Closing Report: Gold and Silver Gain With Stocks
By: Chris Mullen, Gold Seeker Report

 
Search

GoldSeek Web

 
Crude’s Capitulation Phase


 -- Published: Monday, 9 February 2015 | Print  | Disqus 

By Bob Loukas

After a long and relentless decline, the Crude market has finally enabled us to anchor its Cycles. Up until 2 weeks ago, Crude was locked in a clear crash Cycle, which made it impossible to expect anything other than a continuation of the crash. But now that Crude has reversed with a 20% rally, its moves are clearly the start of a new intermediate term Cycle.

Based on the duration and the extreme nature of the recent Investor Cycle (IC) decline, Crude’s new-found strength is almost certainly the start of a new Investor Cycle. It’s impossible to know whether the current up-move will be only a counter-trend bounce, but because this is the 1st Daily Cycle of a new Investor Cycle, we should expect the current Cycle to be Right Translated (Meaning it will top beyond the midpoint of the Cycle).

2-9 Crude Daily

On a longer time-frame though, I’m not convinced that the current 8 month downtrend has marked the bottom for Crude. The crash was supply-driven, and the underlying issue will take time to resolve. The genesis of the crash was excess investment in Crude production, which resulted in a supply glut that can only be solved through lower prices, over an extended period of time. Although the move down has been extreme, it’s a completely natural reaction to a significant supply/demand imbalance.

Three months of prices below production costs is not nearly enough time to have soaked up the current glut of supply. Oil firms have invested heavily in their production facilities, and want to be certain that the demand/supply dynamic is going to persist before shutting off production. And taking production offline is not immediate. It’s a lengthy process, with the decision to remove production leading market impacts by a significant length of time.

As with any bull market, Crude faces a situation where only time and repeated losses will cause participants to accept the market’s new reality. Any decision to close a facility is based primarily on expectations for longer term prices, and price expectations are always intensely biased to the upside at the end of a bull market. If Crude shows even a hint of a quick recovery in price, firms will be encouraged to “weather the storm”, only prolonging the extent and length of the decline.

So long as the massive stockpile of Crude inventory persists, lower production will not – in the short term – correct the imbalance. What’s required will be for facilities to close, production to fall, and enough time to pass for the existing inventory to be worked down. Unfortunately, I believe that the imbalance is structural, so it cannot and will not be corrected quickly on the demand side. Until we see supply better reflect the true demand for Crude, there is little prospect of a longer term recovery in price.

Courtesy Bedspokeinvest

Bankruptcies and closures of Oil companies are underway, and this will help to reduce the supply imbalance. But this process will need much more time, possibly years, to play out. A look at the number of rigs in production makes it clear what led to the crash in prices. Between 2010 and 2014, there was massive over-investment in production, resulting in the addition of 4 million barrels of US Crude production per day. The result was the highest level of production in 30 years.

The current drop in rig counts has, so far, been about 30% from peak to trough. In past crashes, however, the rig count has declined by 50-60%. It takes time for any supply imbalance to work its way through the system because producers find it hard to shut down production. In some cases, producers even ramp up production in an attempt to compensate for the price declines. Netting it out, even with the recent price crash and rig closures, Energy Administration numbers show that the US still produces 9.19 million barrels of Crude per day, the most since 1983.

2-9 US Oil Rig Count

Given current production, any upside movement in Crude prices will likely be capped. During the past 5 years, Crude witnessed a huge boom and period of over-investment, and it will take longer than 7 months to correct the imbalance. I believe that the best the industry can hope for is that price recovers to the $60 to $70 level, where production is closer to its break-even point. That said, markets rarely work logically, and are typically drawn to the levels that will inflict the greatest pain on the most people in the shortest length of time.

It has been a minimum of 37 weeks since the last Investor Cycle Low. This is one reason why back-to-back powerful weeks, the first such sequence since last May, signal the start of a new Investor Cycle. But with Crude coming out of a crash Cycle, price discovery will be difficult, and we should continue to see heightened volatility. To solve the over-production issue, I believe we’re going to need at least a year of depressed prices. If so, during the next 2 Investor Cycles (52 weeks), Crude prices should fluctuate between $40 and $60, with a real possibility of a drop below recent lows.

2-9 Crude weekly

The Financial Tap publishes two member reports per week, a weekly premium report and a midweek market update report. The reports cover the movements and trading opportunities of the Gold, S&P, Oil, $USD, US Bond’s, and Natural Gas Cycles. Along with these reports, members enjoy access to two different portfolios and trade alerts. Both portfolios trade on varying time-frames (from days, weeks, to months), there is a portfolio to suit all member preferences.

http://thefinancialtap.com/


| Digg This Article
 -- Published: Monday, 9 February 2015 | E-Mail  | Print  | Source: GoldSeek.com

comments powered by Disqus



 



Increase Text SizeDecrease Text SizeE-mail Link of Current PagePrinter Friendly PageReturn to GoldSeek.com

 news.goldseek.com >> Story

E-mail Page  | Print  | Disclaimer 


© 1995 - 2017



GoldSeek.com Supports Kiva.org

© GoldSeek.com, Gold Seek LLC

The content on this site is protected by U.S. and international copyright laws and is the property of GoldSeek.com and/or the providers of the content under license. By "content" we mean any information, mode of expression, or other materials and services found on GoldSeek.com. This includes editorials, news, our writings, graphics, and any and all other features found on the site. Please contact us for any further information.

Live GoldSeek Visitor Map | Disclaimer

The views contained here may not represent the views of GoldSeek.com, its affiliates or advertisers. GoldSeek.com makes no representation, warranty or guarantee as to the accuracy or completeness of the information (including news, editorials, prices, statistics, analyses and the like) provided through its service. Any copying, reproduction and/or redistribution of any of the documents, data, content or materials contained on or within this website, without the express written consent of GoldSeek.com, is strictly prohibited. In no event shall GoldSeek.com or its affiliates be liable to any person for any decision made or action taken in reliance upon the information provided herein.