Oil Market Summary and Outlook: OPEC Capitulates
OPEC is floating trial balloons. Wire reports overnight noted that a rise in the output ceiling was being considered. But Reuters reported that "There is little OPEC can do to bring near record-high oil prices down, Algerian Energy and Mining Minister Chakib Khelil said on Tuesday. ["There is not much we can do, we can make a goodwill gesture,"] Khelil said, adding that other factors other than OPEC supply were driving prices. "
Countering that claim "Saudi Arabian Oil Minister Ali al-Naimi has proposed OPEC increase its 27 million barrels per day output ceiling by 500,000 bpd when the group meets on Wednesday in Iran.'
The bottom line, as we have said multiple times, is that events are now on a path that will bring on some kind of climactic event, either a major decline, or a parabolic move in oil toward previously unexpected highs, similar to the Internet bubble, and of course, the dramatic reversal, of such a climb.
Investors should be wary of the oil market, and should use extreme caution in any exposure there.
The Amex Oil Index (XOI) held its recent fall, but is so over extended that it could still fall 10-20% and still be considered to be in a long term up trend. That means that we could be starting one of those refreshing pauses, as we did earlier in 2005, before things got launched to new highs.
OPEC will be meeting on 3-16, and faces a dilemma, whether to cut production now, and risk a price escalation in the short term, or to keep pumping near full capacity and risk a glut at some point in the future, when demand slows.
Either way, supply data will be released on Wednesday, also adding to the mix, and raising the potential for significant volatility.
The Philadelphia Oil Service Index (OSX) also held up, but remained below its 20 day moving average. Volatility will likely increase here in the next few days. For more details on trading the energy sector visit our energy timing page, featuring our highly effective OIH timing model and our Top Ten Energy Stock List.
The Amex Oil Index (XOI) acted better than the oil service stocks. XOI remains above the 50 day moving average, preserving an up trend. For immediate analysis, including stock picks, and the latest in technical analysis of the entire energy complex, our subscriber section has a full complement of recommendations in oil service and the rest of the energy complex.
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- Russell: China Crude Oil Storage Splurge Is OPEC's Best Friend (Oct 16)
- OPEC Is Said to See Oil Inventory Glut Finally Gone in One Year (Oct 12)