06/24/2011
30 Million Barrels - A Drop In The Bucket
by Carl Swenlin
(This is an excerpt from June 24, 2011 issue of the blog for Decision Point subscribers.)
Yesterday the administration released 30 million barrels of crude from the nation's strategic reserve. This represents about a day-and-a-half of our current usage, so it is really just a drop in the bucket and not likely to have a significant effect on the price of oil or gasoline.
On the daily chart below you can see that there was a sharp one-day drop that touched the $90 level, but it closed slightly above Monday's low. More important, we can see that crude has been falling in price for about seven weeks, and a declining trend been established.
Taking a longer-term look with the weekly-based chart, we (who are looking for lower oil prices) get more encouragement as we see that the long-term rising trend line has been penetrated, and the weekly PMO is falling below its EMA -- both indications that the decline should continue. Currently, prices are sitting on top of a support zone between 70 and 90, and, while lower prices may be coming, it will probably take some work to eat through that support.
Bottom Line: Releasing some of our strategic oil reserve was a tactical move that will probably have little effect on the long-term movement of oil prices. Fortunately, prices were headed lower well ahead of yesterday's announcement. We can't argue, however, that the move will probably give the down trend a temporary nudge. As of 5/16/2011 United States Oil Fund (USO) is on a Trend Model NEUTRAL signal, which means we have a medium-term sell signal in a long-term bull market. Being neutral is intended to avoid the decline.
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Technical analysis is a windsock, not a crystal ball.
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