The oil rally should end today for 3 reasons:
1) Fundamentals: As we head into the Labor Day weekend in the US, refiners will switch over and cause less demand for oil for products like gasoline. US producers also putting on hedges around the $45-50 area, with smaller highly levered producers being forced by lending banks to lock in their margins, else restructure debt. Record levels of production continue to show in the big OPEC countries, and the tug of war for market share between Saudis, Iran, Russia continues. Global product market remains oversupplied.
2) Technicals: Dailys are finally showing extreme overbought conditions and are reaching a critical turning point, according to the stochastics. Also WTI is hitting the top of the Bollinger Band, and you can see exhaustion in the bull camp from all the Saudi critter chatter this week. Momentum slowing down from the initial media blast/hype.
3) Trading: Tons of Sep16 WTI put options were put on at $40, $45 which came in the money helped spike in hedging forcing traders to cover. Since this expired yesterday, this is one less wild card that can cause any more spikes in oil prices.
4) Sentiment: We are now at extreme bullish sentiment, so when everyone is a bull, the only thing that can happen next is a reversal of sentiment similar to when everyone in the market thought we would head to $10 back in Feb. Longs will get greedy and continue to hold on, and retail / speculators has already or will continue to pile on longs in coming days as they continue to read the news of a spike in oil prices.
1) Fundamentals: As we head into the Labor Day weekend in the US, refiners will switch over and cause less demand for oil for products like gasoline. US producers also putting on hedges around the $45-50 area, with smaller highly levered producers being forced by lending banks to lock in their margins, else restructure debt. Record levels of production continue to show in the big OPEC countries, and the tug of war for market share between Saudis, Iran, Russia continues. Global product market remains oversupplied.
2) Technicals: Dailys are finally showing extreme overbought conditions and are reaching a critical turning point, according to the stochastics. Also WTI is hitting the top of the Bollinger Band, and you can see exhaustion in the bull camp from all the Saudi critter chatter this week. Momentum slowing down from the initial media blast/hype.
3) Trading: Tons of Sep16 WTI put options were put on at $40, $45 which came in the money helped spike in hedging forcing traders to cover. Since this expired yesterday, this is one less wild card that can cause any more spikes in oil prices.
4) Sentiment: We are now at extreme bullish sentiment, so when everyone is a bull, the only thing that can happen next is a reversal of sentiment similar to when everyone in the market thought we would head to $10 back in Feb. Longs will get greedy and continue to hold on, and retail / speculators has already or will continue to pile on longs in coming days as they continue to read the news of a spike in oil prices.