econintersect.com
       
  

FREE NEWSLETTER: Econintersect sends a nightly newsletter highlighting news events of the day, and providing a summary of new articles posted on the website. Econintersect will not sell or pass your email address to others per our privacy policy. You can cancel this subscription at any time by selecting the unsubscribing link in the footer of each email.



posted on 16 December 2015

Is Oil Close To A Tradable Bottom?

by Charles Hugh Smith, Of Two Minds

By all accounts, the world is awash with oil: production remains high while demand is softening along with the global economy. This has led many observers to forecast further declines in oil from the current price (in USD) of around $35/barrel.

See, for example:

This Is Why $20 Oil Is A Possibility (Zero Hedge)

IEA Offers No Hope For An Oil-Price Recovery

Despite the downward pressure on oil, the devil's advocate wonders: could oil be setting up a tradable bottom? By tradable bottom I mean a level from which oil might bounce. For example, oil reversed from the low $40s earlier in 2015 and climbed to about $60 before resuming its downtrend.

Put another way: if oil's ultimate bottom is $20/barrel, it is likely to experience sharp rebounds/retraces along the way, just as it did early in 2015. These near-term lows are tradable bottoms rather than the final long-term low, which is anyone's guess.

Consider the daily chart of WTIC oil, which is tracing out a bullish descending wedge. The stochastic is also oversold. MACD is weak and bleak, but the punch through the lower Bollinger Band leaves the door open to an exhaustion move.

The weekly chart of WTIC oil is also tracing out a bullish descending wedge. Interestingly, MACD has been diverging, rising even as oil has broken down to new lows. Oversold can stay oversold for a long time, but it is still worth noting the stochastic is approaching oversold levels.

One way to assess if an asset or commodity is at an extreme is to compare its price with the price of gold and oil. Over the long-term, these ratios tend to revert to the mean.

Consider this chart of the gold-oil ratio: it is now pushing 30, which means one ounce of gold buys 30 barrels of oil.

You can see that typically the ratio is between 10 and 20. When oil was almost $150/barrel, the ratio sank near 7--an extreme at the other end of the scale.

To view interactive chart with variable time frames, click on the historical chart below:

gold.divided.by.oil

What would it take for the ratio to return to 15? Either oil must rise or gold must drop significantly. In a world in which phantom collateral and phantom assets are vanishing before our eyes, I don't see gold declining much--rather, I see its current basing phase as setting up a long-term upward bias.

If gold doesn't drop significantly, the only way the ratio can resume its historical average is for oil to go back up to $60-$70/barrel or more. This looks "impossible" at the moment, but if the gol-oil ratio has any relevance, it's something to leave in the realm of the possible.


My new book is in the top 10 of Amazon's category of international economics: A Radically Beneficial World: Automation, Technology and Creating Jobs for All. The Kindle edition is $8.45, a 15% discount from its list price of $9.95.

>>>>> Scroll down to view and make comments <<<<<<

Click here for Historical Investing Post Listing










Make a Comment

Econintersect wants your comments, data and opinion on the articles posted.  As the internet is a "war zone" of trolls, hackers and spammers - Econintersect must balance its defences against ease of commenting.  We have joined with Livefyre to manage our comment streams.

To comment, using Livefyre just click the "Sign In" button at the top-left corner of the comment box below. You can create a commenting account using your favorite social network such as Twitter, Facebook, Google+, LinkedIn or Open ID - or open a Livefyre account using your email address.



You can also comment using Facebook directly using he comment block below.





Econintersect Investing


search_box

Print this page or create a PDF file of this page
Print Friendly and PDF


The growing use of ad blocking software is creating a shortfall in covering our fixed expenses. Please consider a donation to Econintersect to allow continuing output of quality and balanced financial and economic news and analysis.


Take a look at what is going on inside of Econintersect.com
Main Home
Analysis Blog
Proud to Be a Nihilist: Bill Mitchell on Econometrics and Numerical Prediction
Fixing Obamacare - Why It Won’t Be Easy
News Blog
The 10 Most Stolen Cars In America
Improvements In US Air Pollution
Has The Fed Been Effective In Stimulating Consumption?
Major League Soccer's Best-Paid Players
What We Read Today 02 December 2016
Why Your Phone Battery Gets Worse With Time
25 November 2016: ECRI's WLI Growth Index Improves
November 2016 BLS Jobs Growth Continues To Be OK, Just Not Great
Rail Week Ending 26 November 2016: Another Positive Week
It Will Take More Than A Wall To Solve Border Crime
Infographic Of The Day: How The Power Grid Actually Works
Early Headlines: Asia Stocks Down, Oil Eases, More Trump Noms, May Rebuked At Polls, Italy's 5 Star Movmt, Assad's Treachery, India's Currency Mess, Canada's Housing Bubble Popping? And More
30 Years Of American - German Trade Relations
Investing Blog
Investing.com Weekly Wrap-Up 02 December 2016
Anticipating The Trend Change Makes For The Lowest Risk
Opinion Blog
Please, Donald Trump, Don't Send Climate Science Back To The Pre-Satellite Era
What Would It Take For Inflation To Surge - Or Even Just Emerge?
Precious Metals Blog
Silver Prices Rebounded Today: Where They Are Headed
Live Markets
02Dec2016 Market Close: WTI Crude Climbed Back Up To Previous 51 Handle, US Dollar Index Trading At The100 Level, Oil Rig Count At 10-Month High
Amazon Books & More






.... and keep up with economic news using our dynamic economic newspapers with the largest international coverage on the internet
Asia / Pacific
Europe
Middle East / Africa
Americas
USA Government



Crowdfunding ....






























 navigate econintersect.com

Blogs

Analysis Blog
News Blog
Investing Blog
Opinion Blog
Precious Metals Blog
Markets Blog
Video of the Day
Weather

Newspapers

Asia / Pacific
Europe
Middle East / Africa
Americas
USA Government
     

RSS Feeds / Social Media

Combined Econintersect Feed
Google+
Facebook
Twitter
Digg

Free Newsletter

Marketplace - Books & More

Economic Forecast

Content Contribution

Contact

About

  Top Economics Site

Investing.com Contributor TalkMarkets Contributor Finance Blogs Free PageRank Checker Active Search Results Google+

This Web Page by Steven Hansen ---- Copyright 2010 - 2016 Econintersect LLC - all rights reserved