10-18-2017: December Crude Oil: Many Bullish Factors Temporary

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Introduction
Intermarket
Parabolic

Nirvana
News
Point & Figure
Cyclic/Seasonal

Internal Progrm
Third System
Margin

Historic Range
Commitment
Volatility

Random Chart
Options
Calend Spread

Level Table
Other Factors
Recommendation

1     01

2     3

5     6

4


Introduction

Weighting good news/ bad news for oil prices, we find that the good news items are often temporary, such as a Chinese fuel stocking program, while bad news factors such as new shale field discoveries or electric vehicle usage increases are much more permanent in affecting oil prices. Oil topped $51/barrel for the first time in four months. Is it now time for a reaction? Or are Middle East tensions going to dominate the pricing arena, especially if sanctions are reinstated against Iran? We think. "Look for that not to happen right away." Still, oil prices have been getting stronger of late, and our technical and fundamental factors "system" came out so "balanced" that we had to double-weight our interpretation of the news to break a tie and make a risky decision that "sell" is the best way to go for now.


Intermarket Analysis

We fed Crude Oil, Gasoline, and Heating Oil into a neural network to get the following result:




Parabolic Chart

December Crude Oil:

Parabolic Chart


Nirvana Chart

December Crude Oil:

Initial Chart


News Analysis

Chinese crude oil imports jumped by nearly 9% from the prior month in September. January through September crude oil imports by China are up 12.2% from a year ago. The Chinese economy is gaining momentum that could project even stronger oil import activity in the future. However, sharp September inflows were also the result of restocking ahead of winter months which may not be repeated later in the year. A 1.1% jump in U.S. refinery operations could help to pull down crude stocks ahead. U.S. crude oil stocks however have been declining surprisingly by 2.4 million barrels over the past month or so. U.S. crude stocks are 11.742 million barrels below a year ago at this time according to the Energy Information Agency. A private analyst predicted $70 Brent crude over the coming five years. Increased military activity is being seen in the Kirkuk oil region and renewed fears of U.S. trade sanctions against Iran are supportive for crude. Crude oil imports to the U.S. are at 7.617 million barrels per day for the past week compared to 7.214 million barrels the week before that. The refinery operation rate in the U.S. is 89.2%, up 1.10% from the previouis week and compared to 85.5% last year and a five year average of 86.64%. Traders short gasoline and heating oil products may have been caught in bad positions. Demand for gasoline is up and for heating oil down versus a year ago.

TransCanada announced that it would scrap its plans for a 2,800-mile major pipeline that would traverse nearly the entire country, closing off a crucial export route for Canada's oil sands. The $15 billion project would have carried 1.1 million barrels per day from Alberta to Canada's eastern coast for refining and export. Canada has heightened environmental scrutiny and observation of green house gas emissions, unlike the U.S. which is tending to go the other way. Unlike the U.S., Canada may also block the Keystone Pipeline.

The U.S. continues to export more than 900 thousand barrels per day of crude oil while continuing to import 8.1 million barrels per day. The reason for this anamoly is that U.S. exports are of hgiher quality and a better fit for foreign refineries where as U.S. refineries handle "dirty" oil better. The biggest receiver by far of U.S. oil exports is Canada. This is followed by the Netherlands, Curacao, China, and Italy.

Southern Company is considering building one of the first new nuclear power plants in the U.S. in decades in South Carolina. It is also partnering to build nuclear plants in Goergia with the full support of the Georgia Public Service Commission. Capital expenditures for these projects could raise electric rates for existing customers in these areas.

British Petroleum may have unlocked a major shale gas basin in northern New Mexico. It could produce nearly 13 million cu. ft. of natural gas per day, topping the output even of Eagle Ford shale. To underscore the importance of developments in this area, BP is relocating its U.S. headquarters to Denver.

"Blockchain" is a technology that fostered "bitcoin." It enables direct transactions between parties without an intermediary middle man. It may start being used in the oil industry, and help Venezuela's failing oil industry. The result would be decentralization of oil transactions and a major disruption to the current status of the oil industry in general. It could even impact OPEC transactions so that OPEC cuts would be harder to enforce. Current OPEC output restrictions expire next March, and the feeling is that the market is beteter balanced now than a year ago.

Longview Economics looking at an IPO of Saudi Aramco stock, believes it must be issued quickly before oil goes to $10/barrel when the electric car revolution takes over. It states that 70% of crude oil is now used for transportation, as opposed to electric generation. An electric vehicle boom is particularly now evident in China which could crash oil prices.

An oilfield platform in Lake Pontchartrain near New Orleans is currently burniing, and possibly spilling oil into the lake. Cleaning chemicals ignited on the surface of the platform causing the fire.

Our assessment of tne news generally is that many current bullish factors for oil prices are temporary and oil prices have been extremely "reactive" in past months. Therefore, we would look for a possibly retracement, especially as China completes its current oil storage/stocking boom.


Point & Figure Chart

 87.0I                                                                  R 10/13
     I NYM - Dec-18 Crude Oil, 1000 bbl, $/bbl     Cm.=0.03  Lim.= 1.6
     I
     I
     I           X
 82.0I___________XO____________________________________________________________
     I X         XO
     I XOX       XO
     I XOXO      XO
     I XOXOX     XOX
 77.0I_XOXOXOX_X_XOXO__________________________________________________________
     I XOXOXOXOXOXOXO
     IOXOXOXOXOXOXOXO
     IOX XO O OXOXOXO
     IOXO     O O OXO
 72.0IOX__________OXO__________________________________________________________
     IOX          OXO
     IOX          O O
     IOX            O
     IOX            O
 67.0IOX____________OX_________________________________________________________
     IOX            OXO
     IOX            OXO
     IO             O O
     I                O
 62.0I________________O________________________________________________________
     I                O
     I                O                X
     I                O                XO          X X
     I                O                XOX         XOXO
 57.0I________________OX_______________XOXO____X___XOXO________________________
     I                OXO              XOXO    XO  XO O
     I                OXO            X XO OX   XO  X  OX
     I                O O            XOX  OXO  XO  X  OXO
     I                  O            XOX  OXOX XOX X  OXO
 52.0I__________________O________X___XO___OXOXOXOXOX__OXOX___X_________________
     I                  O        XOX X    OXOXOXOXOX  OXOXO  X
     I                  O        XOXOX    OXO OXOXO   O OXOX X
     I                  O        XOXOX    OX  O OX      OXOXOX
     I                  O  X     XOXO     OX    O       OXOXOX
 47.0I__________________O__XO____XOX______OX____________OXOXO__________________
     I                  O  XOX   XOX      O             O OX
     I                  OX XOXO  XO                       OX
     I                  OXOXOXOX X                        O
     I                  OXOXO OXOX
 42.0I__________________OXO___OXOX_____________________________________________
     I                  OX    OXO
     I                  O     OX
     I                        OX
     I                        O
 37.0I_________________________________________________________________________
     I
     I
     I
     I
 32.0I----I----I----I----I----I----I----I----I----I----I----I----I----I----I---
               111111111                        11111
      88999999900000112211112222223444556668899901112114456789
      02000112200012020202220001222012111220301231231010210021
      67124683311528542462671482464880025179185816905305112394
Our computer tells us a non-conventional reactive approach works best for crude oil on p&f charts. Therefore the above chart is taken as giving a sell signal.


Cyclical and Seasonal Factors

We are headed toward a cyclical high and are in a seasonal down period.

Cyclicals Cyclicals Seasonals
Seasonals


Internal Program

Our best-performing internal program is "LSS3Day." It is giving a buy signal.

Internal Printout 1

Results of "LSS3Day" for Crude Oil (blue lines = successful trades, red, unsuccessful): (Always in the market.)

Results


Third System Confirmation

Our third system is working on a very long term buy signal. (Note, disregard the year on the chart. Our regular readers know this is not a Y2K-compliant system, but it still works.)

Third System


Margin

The point value is $1,000. Initial margin on a single contract is $2,2723. Use of options is advised.


Historic Range

Scale trade buyers are entering the market for the long term in this price range.

Historical Chart


Commitment of Traders

Commitment 1

In the chart below, the yellow line is the futures price, read on the right axis. All other colors are read on the left axis. Blue is small speculators. Red is large speculators. Green is commercials. Large speculators with the best track record are getting increasingly-short.

Commitment 2

Interpretation of a Different Site Below (Their trader categories vary from ours):

Commitment 3


Volatility / Probable Range

FB 1 FB 2

The average volatility shown below suggests that a change in major trend to down is imminent at a volatility low point.

Range/Volatilitiy Chart


Possible Future Prices

Random Chart


Option Recommendation

Our option trade recommendation is to Buy (1) Crude Oil February 55 Call and Sell (1) Crude Oil February 52 Call @ 1.39 to the sell side or better.


o 1 o 2 o 3 0 4 o 5


Calendar Spread

What the Dec. - Jul. calendar spread suggests to us is that buying the near contract and selling the far one is at most times profitable, which we think is a sign that these futures may go flat in the long run. The best time to enter or leave the above spread is when it is at -0.40 or narrower buying the far as prices are rising and then selling the near, and exiting or entering when it is at -1.20 or wider selling the far as prices are falling and then buying the near. At this time, we appear to be approaching the buy the far, sell the near point.





Level Table:

Level Table

The path of least resistance is up.
 62.0|                                                                  R 10/13
 NYM - Dec-18 Crude Oil, 1000 bbl, $/bbl     Cm.=0.03  Lim.= 1.6
     |
     |
     |
 59.5|EF_______________________________________________________________________
     |EF
     |EEFFFF
     |AEEEEEFFFFFFFF
     |AADEEEEEFFFFFGGHHJJ
 57.0|AADEEEEEEEFFFGGGHHHHHHJJJJJKKK___________________________________________
     |AAAAAADDDDDEEEEEEFFFFGGGGGGGGGHHHHHHHJJJJJJJJKKKKK
     |AAAAADDDDDDEEEFFGGGGGGHHHHHJJJJJJJKKKKK
     |AAAADDDDDEFGGGGGHHHKKKKKNNN
     |AAABDDDFGGGHHKNNNNNN
 54.5|ABDDHKNNNN_______________________________________________________________
     |BBCDDKMNN
     |BCDKKMMN
     |BCCCDKKMMMMMNNQQQ
     |BCCCCDKLMMMMNNNQQQQZ
 52.0|BCCCDDKLLMMNPQQYYYZ______________________________________________________
     |BBCCCCDDDKLLLLLMMNOOPQYYZZ[
     |BBBCCCCCDDDLLLLLLMNOOOOPPPPQQQUUYZZZZ[   <<<
     |BBBBCCCCCDDDLLLLLMMOOOOOPPPPQQQQUUVVYYYYYYYZZZZZZ[[
     |BBBBBBCCCDDDLLLLMMMOOPPPPQQQQUUUVVVVVVVYYYYYZZZZZZ[
 49.5|BBBBBBCCDLMOOPPPQQQQUUUVVVVVVVXXXYYZZZ___________________________________
     |BBCCLOOOPPPQQQRRUUUVVWWWXXXXXZZ
     |BBCCCOPPQQRRUUVVWWWWWWXXXXX
     |BCCOOPPPQQRRSTUUUVWWWWWWXXX
     |COOPPRRRRSTTTTUUUUWWWWXXXX
 47.0|OORRRRRRSSTTTTTTTUUUWXX__________________________________________________
     |ORRRSTTTTTUUWXX
     |ORRRSSTTTTT
     |ORRRSSTTTT
     |SSSSTTT
 44.5|SSSSST___________________________________________________________________
     |SSSSS
     |SSSS
     |S
     |
 42.0|-A-B-C-D-E-F-G-H-J-K-L-M-N-O-P-Q-R-S-T-U-V-W-X-Y-Z----|----|-- TPO= 0.745
       1 1 1 1 1 1                                       1           1
       0 0 1 1 2 2 1 1 2 2 3 3 4 4 5 5 6 6 7 7 8 8 8 9 9 0           0
       1 2 1 2 1 2 1 2 0 2 1 2 0 2 0 2 0 2 0 1 0 1 3 1 2 1           1
       7 8 1 8 2 7 1 6 9 4 0 4 7 4 8 2 6 0 5 9 2 6 0 4 8 2           3


Other Factors

Multiple Chart Indicators Summary
Multiple Chart Indicators Summary


Here's an intraday chart for a previous day (10/16).

Intraday Chart





Overall Recommendation

Decision Weighting Factors
FactorsWeighted Points
Inter-Market Analysis - 1
Parabolic Chart + 1
Nirvana Chart - 1
News - 2
Point & Figure - 1
Cyclicals + 1
Seasonals - 1
Internal System 1 + 1
Internal System 2 0
Third System + 1
Historic Range + 1
Commitment of Traders - 1
Range/Volatility - 1
Level Table + 1
Other Factors + 1
Total - 1
Place 5 December Crude OIl on a Sell Watch with stoploss @ +4.00 above the get-in point when recent price is represented as "51.73".
____________________________________________________________________________________________________________________________________________R.S.