05-09-2018: July Crude Oil: U.S Sanctions Help Put Crude Over the Top

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Point & Figure

Internal Progrm
Third System

Historic Range

Random Chart
Calendar Spread

Level Table
Other Factors


01     2


Iran and Venezuela, major oil producers appear to be out of the mainstream of world oil supply while the U.S. output is soaring, but on a higher U.S. Dollar making competition with Russia difficult. Futures are seeing high demand for crude oil mixed with a gamut of potential geopolitical problems aggravated by a recent decision by our President. As usual, he helps his big oil buddies in giant Wall St. corporations (energy producers) while socking it to the middle class in America to support these "gifts" to big oil. Shell and Chevron are profitable once again.

Intermarket Analysis

We fed Kansas wheat, Chicago wheat, and soybeans into a neural network to get the following result:

Parabolic Chart

July Crude Oil:

Parabolic Chart

Nirvana Chart

July Crude Oil:

Initial Chart

News Analysis

Iran suggested that it would not renegotiate a new nuclear deal. The threat against an Iranian supply flow is now a major issue. A rising U.S. Dollar and fear of further rate hikes did little to weaken crude oil prices by limiting U.S. exports. The deadline for the current Iranian deal is set to expire on May 12th, but Europeans are expected to try to push that date backward. Markets discounted late news that the U.S. rig count is increasing. This was the fifth week in a row of builds in that number. Crude oil prices have returned to the vincinity of $71/barrel in the face of U.S. intentions to spend more money on drilling this year. The latest increase is by 9 rigs bringing the total rig count to the highest level in 3 years. A record volume of trade in Shanghai futures for crude oil overnight bringing prices to $72.50 there. Crude oil product prices also look strong, but refinery problems could reduce a call for crude oil short-term. However, the same situation tightens supply of products keeping prices there high.

The Organization of Petroleum Exporting Countries (OPEC) has been trying to curb global production since the start of last year. Venezuela has output woes due to political unrest in that country. An accord between Saudis and Russians to limit oil output is probably the Number One reason for higher crude prices. OPEC producers agreed to cut production by 1.8 million barrels per day. OPEC's crude production fell in Aril for a third straight month to a one-year low. Last month it produced 32 million barrels per day, down 140,000 barrels per day from March. That is about 730,000 barrels per day below OPEC's ceiling of 32.73 million barrels per day, when every country's quota under its production agreement is tallied.

The International Energy Agency (IEA) forecasts global demand at 99.3 million barrels per day in 2018, up from 97.8 barrels in 2017. But a trade dispute between the U.S. and China could hurt oil demand.

If sanctions on Iran are reintroduced, one analyst thinks crude oil futures could jump as much as $10/barrel. The same analyst looks for a top if sanctions are not reintroduced, and President Trump is about to announce his decision on the Iran deal.

Venezuela had the lowest oil output of the 30-year history of Platts OPEC Survey, aside from a 2002-2003 strike that severelly debilitated Venezuela's state oil company PDVSA. This decline was a primary factor helping OPEC achieve its targets.

U.S. oil output is at all-time highs making the U.S. the world's No. 1 oil producer.

Oil prices have now more than doubled from their ebb two years ago. President Trump's decision is likely to push them even higher. Iran is the world's fifth-largest oil producer. That shoud further help his Wall St. buddies, as Chevron and Royal Dutch Shell each reported recent earnings comparable to where they were four years ago. Some think $4 to $5/gallon will be necessary to have psychological impact on American consumers to get them to reduce their consumption of gasoline.

Oil prices for futures are influenced by sentiment as much as by fact as fears of geopolitical risks precede any actual change in shipments of oil.

Some analysts believe we are in the initial phases of a new demand-led bull market. As oil demand soars, shale oil is expected to contribute to this situation rather than to dampen it.

In early April, the American Petroleum Institute (API) reported a surprise build of 1.758 million barrels of U.S. crude oil inventories for the week ending April 6th, while analysts had anticipated a draw of 189.000 barrels. A similar build in gasoline stocks accompanied this news.

The Keystone XL pipeline is still facing an uncertain future, and Alberta's shale oil producers are desperately seeking new ways to move oil to market. Kinder Morgan announced it would halt all work on their Trans Mountain Pipeline Expansion, as it faces opposition from environmental groups and local affected communities. The provincial government in British Columbia is far more environmentally-conscious than the thoroughly rotten U.S. EPA run by Scott Pruit, one of the most corrupt of all Trump's "loyal" cabinet members.

The U.S. Permian Basin is producing about 3.156 million barrels of shale oil per day, up 850,000 bpd from a year ago. Shale producers are pouring in billions of dollars into the region, and about two out of every three new oil rigs are going into the Permian Basin. But the area is getting crowded causing skyrocketing prices for land. There has been trouble finding pipelines to get from there to the East Coast. Few analysts expected the Permian to run out of pipeline capacity so quickly. Shortages of sand and labor could allow oil prices to be poised to rise further as an exploration cycle comes to an end. The IEA is warning about a potential supply problem in the 2020's. These could arrive even sooner if pipeline problems are not solved.

Point & Figure Chart

 88.0|                                                                  R  5/ 7
     | NYM - Jul-18 Crude Oil, 1000 bbl, $/bbl     Cm.=0.03  Lim.= 1.6
 83.0|_________X_______________________________________________________________     |         XO
     | X       XO
     | XOX     XO
     | XOXO    XO
     |OX        OXO
     |OX        OXO
     |OX        O O
     |OX          O                                          X
     |OX          O                                          X
     |OX          O                                          X
     |OX          O                                    X   X X
     |O           O                                    XO  XOX
     |            O                                    XOXOXO
     |            O                                    XOXOX
     |            O            X                       XOXO
     |            O            XO            X X       XOX
     |            O            XOXOXO    X   XOXO      X
     |            O            XOXOXO    XO  XO O      X
     |            O            XO O OX   XO  X  OX     X
     |            O            X    OXOX XO  X  OXO    X
     |            O        X   X    OXOXOXOXOX  OXOX   X
     |            O        XOX X    OXOXOXOXOX  OXOXO  X
     |            O        XOXOX    OXO O OXO   O OXOX X
     |            O        XOXOX    OX    OX      OXOXOX
     |            O  XO    XOX      OX            OXOXO
     |            O  XOX   XOX      O             O OX
     |            OX XOXO  XO                       OX
     |            OXOXOXOX X                        O
     |            OXO   OXOX
     |            OX    OXO
     |            O     OX
     |                  O
              11111                       11111
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 a seasonal down period.

Cyclicals Cyclicals 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.)


Third System Confirmation

Our third system has triggered a 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


The point value is $1,000. Initial margin on a single contract is $2,970. Use of options is advised.

Historic Range

Scale traders are not a factor 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 an uptrend remains intact from the last volatility low point.

Range/Volatilitiy Chart

Possible Future Prices

Random Chart

Option Recommendation

Our option trade recommendation is to Sell (1) Crude Oil Septembere 70 Put and Buy (1) Crude Oil September 68 Put @ 0.93 to the sell side or better.

o 1 o 2 o 5

Calendar Spread

What the Jul. - Dec. 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 up in the long run. The best time to enter or leave the above spread is when it is at 1.90 or narrower selling the far as prices are falling and then buying the near, and exiting or entering when it is at 3.00 or wider buying the far as prices are rising and then selling 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.
 72.0|                                                                  R  5/ 7
 NYM - Jul-18 Crude Oil, 1000 bbl, $/bbl     Cm.=0.03  Lim.= 1.6
     |[   <<<
 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= 0.031
                             1 1 1 1 1 1                              
       5 5 6 6 7 7 8 8 8 9 9 0 0 1 1 2 2 1 1 2 2 3 3 4 4 5           5
       0 2 0 2 0 1 0 1 3 1 2 1 2 0 2 0 2 0 2 0 2 0 2 0 2 0           0
       9 2 6 0 5 9 2 6 0 4 8 2 6 9 4 8 2 9 4 7 2 8 2 6 0 4           7

Other Factors

Multiple Chart Indicators Summary
Multiple Chart Indicators Summary

Here's an intraday chart for a previous day ( 5/07 ).

Intraday Chart

                 Risk Versus Opportunity Report

                   CLN8    July Crude Oil

                      High Price:  76.63
                   Current Price:  70.62
                       Low Price:  67.68

                            Risk:  0.081
                     Opportunity:  0.167

                    (O/R) Ratio =  2.044

Overall Recommendation

Decision Weighting Factors
FactorsWeighted Points
Inter-Market Analysis + 1
Parabolic Chart + 1
Nirvana Chart - 1
News + 1
Point & Figure - 1
Cyclicals + 1
Seasonals - 1
Internal System 1 + 1
Internal System 2 0
Third System + 1
Historic Range 0
Commitment of Traders - 1
Range/Volatility + 1
Level Table + 1
Other Factors + 1
Total + 5
Place 5 July Crude Oil on a Buy Watch with stoploss @ -4.00 below the get-in point when recent price is represented as "70.29".