Oil is not Big deal

Published: Tue, 09/17/19

It was all about Oil recently and Oil is not a big deal if we are going to go into Electric eventually. But for now it matters a bit especially when Money is involved.

My Quora Response to the Why Saudi Matter's

The oil attacks have everyone’s attention. However in some markets like India there appears to be an overreaction and panic over the situation. I say this even before ARamco goes online With its final take on the situation. The market is already anticipated that a potential 5% world oil production may have taken a hit. So the actual numbers could even be a little lower than that. In short the market has priced in the supply shock which is most likely to be reinstated in a month or two. On the other hand this is not the first time that oil has hit the $ 60 mark. If we did not panic the previous time what are we worried about now when inflation is at its lowest in decades, and our forex reserves are not in crisis. The markets reaction then is purely sentimental and reflects the general underlying public mood.

The only risk that I would have perceived from this entire episode would be if geopolitical risks exploded out of proportion. The war rhetoric has surfaced but does not look imminent. Unless we get an outright war with Yemen or a US attack with Iran or a further escalation of Middle East tensions, there is little else to worry about. This is not the first time that events in the oil zone have created tension in the short-term. Just a week back US and Iran were about to get under talks to sort out their differences or at least come to some agreement. Now all of a sudden the US is tweeting about being ready to attack. Again this is not the first time that such threats have been made but not followed up. We can be worried for a while but once the rhetoric dies the above event would stand discounted and markets would return to normal.

In short the oil price risk is minimal and short-term the geopolitical risk can escalate but has not done so yet. Geopolitical developments are longer term and go through several rounds of back-and-forth before the result in any form of serious confrontation.

Apart from watching for a few days to let the dust settle this event should be behind us.

The truth about the markets

And none of the above makes me more or less bullish on Crude. My outlook as published over the last 4 posts in the last month are as below.

Crude

The daily momentum of crude oil remains in by mode. In the short to Metastock making new lows. Let me start with the Monthly chart and look at the big picture. Here prices did not go below the 66% retracement of the previous ABC advance. Holding these levels leaves open the odds that we may still make an attempt to touch the top trendline at $ 83 in a counter trend move is part of a more complex pattern.

crude050919

The second chart shows how we can resolve the near term Elliott wave structure. Starting with an expanded flat that explains the big sell-off last year, that decline is wave A of the triangle. Subsequently wave C was only 61% of wave A. The triangle completed five waves in E. After that, minor waves 1 and 2 have developed, in which wave II is also only 61.8% of we I at $ 53. We may have started another ABC up towards the 83 Mark and wave A will be a five wave move.

crude050919A

Crude

Crude hit the trendline of the highs and paused. Now if the trend up has started we should get past 57.65 soon and the rest is history. However if prices reverse from here the alternate case is that we are still forming a triangle crude 060919
and one last move down to 53-50.50 near the trendline of the lows is pending.

Crude

Oil is the focus of the day. The rising prices are part of a new leg in a larger move up that probably did not complete at last year's high. The last nine months looks like a triangle and reappear to have broken out of it today. Today's event-based breakout might not be what you're looking for and I really prices pull back a bit once the news is discounted. But the charts indicating a higher trend without really knowing what reason would drive the move. I have been counting on the reflation trade, thus the geopolitical angle came as a surprise. It is not clear at this stage whether geopolitics will get louder or not. We are back above the record level of $ 57, holding which we may retest the highs of $ 66.60 in the weeks ahead.

crude 160919

Crude

I am maintaining my wave count on crude, wave iii of III started, and a minor wave iv pullback at some point will happen. But the larger trend should remain positive. the advance from point marked wave 'e' is considered to be a larger A-B-C up and we are in wave A. Wave A should be a 5 wave rise up.

crude 170919

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Rohit Srivastava
www.indiacharts.com
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