18th August 2011

UPDATE

Technical Fundamental

Oil looks weak

in association with

Disclaimer

Authorised and regulated by the FSA

Oil looks weak

147.27 High us@cl.1 160 150 140 114.83 High 130 120 110 High 92.58 High 87.15 100 90

WEEKLY CHART
The markets medium-term rally over the last two years from the $40 supports (established by a succession of Prior Highs at the level) looks to be over. First the diagonal trendline has been smashed. Second, the two prior Highs supports at 87.15 and 92.58 have been broken

in association with

80
50.0%

70

UPDATE Technical Fundamental

61.8%

60

50

$41.15 Pri or Hi gh support from the Monthly conti nuaition chart $39.99 $33.70
40

30 D 2008 A M J J A S O N D 2009 A M J J A S O N D 2010 M A M J J A S O N D 2011 M A M J J A S O N

DAILY CHART
The detail of the breakdown shows the emergence of a bear trend through a succession of bear patterns:

Crude Oil Light Sweet Sep 11

115.63 114.70 109.30

161.8%
115

Diagonal T rendline support (broken)

110

107.59
105

a small Double Top in April,

a bear continuation Triangle in May, and most recently the powerful resistance from both Prior Lows ( 94.02 and 90.17) and the band of broken supports from Prior Highs (thus becoming resistances) 87.1592.58.

100

94.02
95

92.58 Prior High support from 2011 90.17 Low 87.15 Prior High support from 2010

61.8%
90

50.0% 38.2%

H&S Neckline

85

80

Low 75.71
75

(Also, the 50% Fibonacci resistance helped halt the markets bull retracement yesterday)

350000 300000 250000 200000 150000 100000 50000 0

The bear trend is now wellestablished.

Disclaimer

23

1 8 March

15

22

28

4 Apr il

11

18

25

2 9 May

16

23

31 6 June

13

20

27

4 July

11

18

25

1 8 August

15

22

29 September

Oil looks weak

FUNDAMENTALS:
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The Oil market, for so long considered a one way bet for the bulls and potentially ruinous for western economies, no longer looks so sure-footed. As the developed economies moved out of recession and the economies of China, India etc., continued to expand apace, the argument went that oil prices could only go one way. New oil reserve discoveries were deemed as not keeping pace with demand coming from the fastgrowing and emerging economies. And as ever, OPEC made little effort to restrain the price by increasing output, as they sought to cash in on the bonanza. Things have changed. The Eurozone sovereign debt crisis remains unresolved, despite several bailouts. The crisis has spread to Italy and France, and though not with the same intensity that engulfed Portugal, Ireland and Greece, it has still forced both Italy and France to rush through austerity measures in an attempt to placate the markets. But growth in the Euro zone, seen for so long as Teflon-coated, has at last begun to wilt under the strain with German Q2 GDP released earlier this week especially disappointing. In the US, a self-inflicted default was avoided, and a deficit reduction plan adopted. But the AAA rating was lost, at least on S&Ps measure. The focus now is the underlying health of the US economy. Recession has emerged as the main fear, now that the debt ceiling issue has been dealt with.

UPDATE Technical Fundamental

Oil looks weak

FUNDAMENTALS: CONTINUED
in association with Although the US economy recorded growth in Q2, it was seen as very weak. The labour market continues to cause concern despite an improved Non-Farm Payroll report in August, but the housing market has yet to stage anything that resembles a convincing recovery.

UPDATE Technical Fundamental

If the US economy can not shake off its current malaise, or worse still, slips into recession, and the Euro zone cannot find the political cohesion to resolve the debt crisis, a period of economic under performance, or outright recession looks likely. Global equity markets sense this and have been selling off over recent weeks, but of greater interest to us, is oil. If the developed economies of the US, Euro zone and UK fall into recession, oil demand will weaken. The oil price over recent weeks has begun to price that in, but has it gone far enough? We judge the oil price could fall further in the current environment:
Equity markets are selling off hard as we write, and traders are registering their expectation of a new recession. The ECB is very active in markets pumping out liquidity and buying bonds. The Fed has signalled short-term US interest rates are on hold until 2013 and may start a 3rd round of QE. The UK Bank of England is unanimous in not wanting to raise interest rates even though CPI stands at 4.4%; they are worried about growth and are considering a 2nd round of QE.

Watch the price action in this market as oil traders economic expectations catch up with reality.

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UPDATE Technical Fundamental

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