Light Sweet Crude fell for most of the session on Monday as the world continues to worry about slowdowns in various economies. Of note are the Chinese and Europeans. As two of the largest consumers of petroleum in the world, these two counties going into a slow down or even recession would bring down demand for oil going forward. However, the sellers ran into the $100 level, which has held firm as support for the day. The resulting candle for the session in a hammer, and it now looks very bullish going forward. The $105 level is still above and could present some challenges though.
Looking at the fundamentals, there are several different elements at play. The Iranians and Western Powers continue to bicker about sanctions, and the threats by Iran to close down the Strait of Hormuz. This has kept a bid under the oil markets as fully 1/6th of the oil in the world flows through that waterway. In a game of cat and mouse, the market takes no chances as it prepares for the worst possible scenario.
Going forward, this pair will react to both the technical and fundamental factors equally in our opinion. The $105 simply must be cleared on a daily close to consider going long at this point, as there is far too much noise in the next $4 or so. The breaking below $100 on a daily close would also have us involved, but on the sell side.
Until one of these obstacles gets cleared decisively, it is hard to trade the CL contract as the headlines comes out 24 hours a day, and there have been many threats and rebuttals made. The levels are all we can watch at the moment, and they will have to guide us. However, if we do get the buy signal, we are willing to take a longer-term position and aim for roughly $130 by the end. The selling of this contract would have us aiming for $90 first, and then possibly $80 at the end of the move as far as we can see at the moment.
Oil Forecast January 10th, 2012, Technical Analysis
Originally posted here
