Energy Insights

By: Meridian | Mon, Aug 14, 2006
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Crude Oil - Long Term

A Correction in the Making?

Last week I made the suggestion that the long term ongoing Bull market in Crude Oil was looking tired. This week's price action certainly continues to support this thesis. Technically speaking, in order to totally reverse this thesis, we will ideally need to see Crude re-visit and take out last month's highs at $78.40. So, why are we in this situation? After all, the world seemingly is falling down around our ears.

As I pointed out last week, I think a good part of it has to do with the state of the economy. Without a doubt, the economy is slowing and the recent decision by Ben Bernanke not to ratchet up his short term rates speaks to this reality. A slowing economy equates to a reduced demand for Oil and its products, at least in theory anyhow. I also noted last week that if Hezbollah were to get any more aggressive with its rockets and hit Tel Aviv we could see all hell break loose in the Middle East. This did not materialize this week and at this time of writing the UN has voted in favor of a Chapter 6 Resolution to calm the hostilities in the area. A cooling of heads in the Middle East will translate its way into lower energy prices.

So, I will conclude this week with similar comments to last week. That is, we remain in an uptrend mode in Crude Oil but we are looking vulnerable on a couple fronts. RSI on the continuous monthly chart is exhibiting negative divergence which could be a pre-cursor to bigger problems. The Doji Star candlestick formations also hint strongly at weakness. A break of the $70 mark would cause me anxiety. A break below the $63 mark would put the Long Term linear regression channel severely to the test.

Natural Gas - Long Term

The Uptrend Remains...But...

Well, 11 days gone in August and we have so far managed to hang onto gains made in July. However, to repeat my concerns of last week - "...on the above long term chart we still have not taken out the 18 period moving average and the RSI (9 period) still has not managed to get and stay above the "50" mark..."

This causes me some concern and my long term views remain unchanged. As I said recently, "..with Summer now more than half over and with no Hurricanes having impacted the Gulf region so far, one must start to consider the prospect of going into the September/October time frame with a huge amount of Natural Gas in storage. Prices could again get soft."

I therefore remain only cautiously friendly to the Natural Gas market.

Crude Oil - Intermediate Term

A Step and A Stumble ...

Last week I noted that to confirm this Oil Bull has room to run in the intermediate time frame, a move above $76.50 is required. We certainly got this early in the week on news of severe corrosion in BP's Alyeska Pipeline that runs from Prudhoe Bay, Alaska to Valdez, Alaska. But, here is the kicker. The market could not hold these gains and like grains of sand sifting through one's fingers, the price of Crude fell back to the $74 level by week's end - just about where we ended on August 4th. This step and a stumble type of performance makes me nervous. As this intermediate chart shows, we are still in a wedge type pattern but we are hugging the bottom portion of the wedge. A move below $72.77 would cause me to sit bolt upright in my chair. To break out of this wedge to the upside we need to take out $77.50.

We are getting squeezed into the apex of this wedge and as is the case with every wedge pattern, at some point a decision will be thrust upon the market. Last week I wrote of several issues that could influence the price of Crude higher. Now, as I write this week's comments I am undecided. The next week will be key in revealing which way Crude will go from here. Watch carefully.

Natural Gas - Intermediate Term

Sideways...

Last week I wrote that what we needed was a close above $7.75 basis the September futures contract to show me that this Natural Gas market had staying power. This week we tried to get some traction going and inventory data even showed a 12 Bcf drawdown. But after a valiant effort, we simply ended the week where we finished up on August 4th.

So at the moment, we are clinging to a positive trend. The 9 period RSI is above "50" by the slimmest of margins and we are above the 18 day moving average also by the slimmest of margins.

I remain cautiously optimistic and cautiously friendly towards Natural Gas in the Intermediate term. Any price decline from here could prove problematic.

This Week - For my Regular Subscribers

I'll huff and I'll puff and blow your house down ! Energy produced from windpower - is it a good investment? This week , I continue my look at alternative energy with a technical glance at 2 firms that use wind turbines to generate power. One is a hugely successful US firm and much higher price targets are visible. The other is a Canadian firm that has learned that when it comes to wind power, what matters most is location, location, location.

BP Amoco - a tough week to be sure. How have the corrosive events of this week affected BP shares? Will they decline further? This week in Technically Speaking, I offer my comments.

Also in Technically Speaking this week I look at 3 energy service firms. Even though I am developing some reservations about the strength of the Oil Bull market, two of these firms are potentially poised to move higher while the third one is presently pulling out of Nigeria and Venezuela. Short term pain for a better future? This one could be a screaming buy from current price levels.

In a messed up world, where best to get your Oil than from a politically safe neighbor such as Canada. This week I show how a heavyweight in the Canadian Oil Sands has potential to move higher.

How are some of the largest energy equities holding up during this period where Crude Oil is struggling to move higher? One very good way to answer this question is by looking at some ETF's. This week I take a peek at 2 US ETF's and 1 Canadian ETF.

To keep fully abreast of what is happening in the energy markets, consider subscribing to Merv's Energy Central with Meridian. Visit www.themarkettraders.com for details.

 


 

Meridian

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