Why Oil Should Bounce Here

Screen Shot 2015-11-13 at 11.05.38 AMNot since Moe, Larry and Curly Joe struck oil has the industry had such trouble balancing supply and demand. While there’s plenty of bickering about the fundamentals, I’ve found that CL’s price action is an excellent gauge of what to expect.

It’s been fairly easy to forecast.  We called the March bottom very accurately [see: Mar 17 Update on Oil], and were only a few days early in August [see: Oil Bottoms Out.]

As we’ve discussed many times, the supply/demand picture is no longer the most important factor in CL’s pricing. It’s now a part of the central planners’ toolkit of essential levers.

They’ll force prices lower if Japan devalues the yen, thus facilitating the yen carry trade. Otherwise, CL always seems to find a reason to bounce. It’s very much a “carrot or stick” proposition.

From An Offer Japan Can’t Refuse back in September:

One of my more outrageous theories advanced back in March [see: Those Wacky Central Bankers] suggests that oil’s price crash over the past year was engineered in order to induce Japan to further weaken the yen.

The relationship is pretty easy to see, especially at important inflection points such as Aug 2014.2015-11-13 CL v USDJPYIn case you hadn’t noticed, it’s happening again. USDJPY bounced 6.4% off Aug 24’s lows, and is back near its pre-correction highs. CL bounced too, but has given up most of those gains — plunging 21% since its Oct highs.

It’s where it plunged to that has me intrigued.

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