A Bullish Case for Crude Oil

Today's pullback in WTI is possible opportunity to go long WTI here at a favourable entry price in the range of 47-44, with a roughly 44 SL and a 50-52 TP.  Present market sentiment is bearish toward crude, which makes the effects of a market surprise to the upside above 50 dollars the perfect catalyst for crude to trade up to the 52 area, fueled by panic buying from traders that find themselves both caught short and wont to miss the then-evident potential upside. The market's bearish sentiment toward crude is apparently attributable to the widespread belief that The Fed will in fact choose to raise interest rates by 25 basis points at the next FOMC meeting on June 15, price trading along a flattening slope with a roughly 5% pull back, and bearish consensus among the analysts. However, the technical and to a lesser degree general conditions are arguably equally as bullish. Though the move in percentage terms since January appears to be a bit over-stretched, it has been supported by relatively strong, consistent volume and relatively weak volume on correction days. Add to that the current stagflation environment, the fact that potential inflation from QE 1-3 and TAARP has yet to fully work itself through the entire economy, and the effects that ZIRP has had on the propensity of consumer spending, one can reasonably expect some unexpected upward price pressure for commodities in general in the near/short term.


#CrudeOil at 47.72 via @investingcom - http://invst.ly/o7p

Russia and Saudi Arabia in Crude Position Post Doha Talks

Saudi Arabia and Russia are both stuck between a rock and a hard place. If they ramp up production to supplement budget deficit spending then they face the prospects of reduced revenues, should production lead to further price declines via an absence of a reciprocal aggregate demand in quantity. On the other hand, if they freeze or cut production, they may still face falling revenues as a decrease in supply doesn't necessarily equal higher prices with static demand, that would lead to increased revenues.

Furthermore, since the US is now the third-largest oil producer in the world (almost neck and neck with Saudi Arabia), a significant part of oil production policy in Russia and the Middle East now has to factor in more than basic market fundamentals. The effects of any action that artificially manipulates supply now have to be factored in with US shale producers and their affect on supply dynamics. If a production freeze does lead to higher prices, shale oil producers will resume production and benefit asymmetrically as their output levels are not subject to OPEC policy makers. Higher crude prices means higher revenues for the producer with the largest quantity of output, and shale oil producers will take advantage of that opportunity. A production freeze in this sense does not entirely benefit Saudi Arabia as they lose the opportunity to price less efficient producers out of the market; therefore a freeze is a sort of boon to the shale industry as well as a headwind for Saudi government revenues.

For the moment, the most viable option for the Russian and Saudi governments appears to be to let the market decide where crude oil will trade, based on supply/demand fundamentals and the prospects for global economic growth.