If USDJPY is the kingpin of stock manipulation, CL is more like the enforcer.  That is, if USDJPY is otherwise occupied in, say, a gang war with the yuan or the dollar, CL is more than happy to step in and ensure that stocks don’t seize the opportunity to stray from the “understanding” that there is only one direction in which they should spike.

So this morning, as USDJPY cools its heels waiting for the BoJ to come through with expanded easing, CL is up nearly 3.5% — gleefully kneecapping bears who had the nerve to bet against central banks’ omnipotence.It was enough of a move to break out of the triangle it’s been in since late August.  What does it mean for the bigger picture?

continued for members…Recall that CL has already bottomed in a long-term rising channel.

The US fracking industry is taking it on the chin, and banks that are exposed to the industry are nervous.  And, they have a right to be.  Just this morning, the Saudi Minister Naimi indicated supply won’t be cut anytime soon.

Saudi Arabia’s Oil Minister Ali al-Naimi believes economic producers will prevail over higher-cost suppliers and OPEC’s share of the market will rise, India’s Economic Times newspaper reported on its website on Monday.

In comments suggesting Saudi Arabia, the world’s top oil exporter, is sticking to its policy of defending market share rather than supporting prices, Naimi told the paper the drop in oil prices was less of a problem than fluctuations.

“The world needs a reliable, sustainable supply. Best way to do it is to make sure that demand and supply should be equal, so there will not be fluctuation of price. The biggest problem for everybody, producer and consumer today, is fluctuation — the ups and downs,” he was quoted as saying.

Referring to reports that the number of drilling rigs deployed by U.S. shale producers is falling, Naimi said: “Eventually, economic producers will continue to prevail,” the paper reported. 

Naimi disagreed with analysts who believe OPEC’s market share would fall further, the paper reported. “On the contrary, OPEC’s market share will be higher,” he said.

But, lower prices make sense.  And, they’re necessary — particularly in light of the critical yen carry trade.  Japan can’t very well devalue the yen against the dollar unless oil — which is denominated in USD — declines to offset the currency effect.

Yes, it means that marginal players — like the entire shale industry — will be decimated.  But, that’s a sacrifice that central banks are willing to make.  The health of the oil industry versus the wealth effect of trillions in rising equities?  No contest.

So, we can’t very well talk about oil without talking about whether the BoJ is going to expand QQE.  If they do, look for oil to reverse soon in order to accommodate (lest more real inflation threaten the “we need more inflation” mantra of the BoJ, which rather disingenuously bemoans its absence.)

Sooner or later, the rising purple channel will tilt over and die an inglorious death as have its predecessors.  When it does, we’ll see CL back at a 40 handle in no time.

If the BoJ holds off on QQE, then CL will surely spike higher — not for any macroeconomic reason, but to punish the BoJ for not being a team player.

There is no shortage of targets, starting with the SMA200 (currently at 51ish) and the purple .618 at 53.09.  Note that this is in line with our 50 target from our Aug 19 update.  CL came close but couldn’t quite seal the deal on Aug 31.

Stay tuned.