June 12:
West Texas Intermediate crude oil hit an eight-month high today after militants connected to al-Qaeda increased their control over the city of Mosul in northern Iraq, hampering repairs to the country’s primary pipeline that runs from the Kirkuk oil field to the port of Ceyhan in Turkey. In response, Iraq’s ground troops and air force launched attacks on the militants in several cities across northern Iraq. While the skirmishes have taken place in the northern part of the country, there are fears that the instability could eventually migrate to the south, which is where most of the Iraq’s oil fields and infrastructure are located.
On Tuesday, I published a basic chart analysis in which I showed that crude oil prices have been stuck in a trading-range that could be a wedge-type chart pattern since early March. For WTI Crude, the top of the wedge is the $105 resistance level that oil has been unable to break above since the start of this pattern. This week’s renewed instability in Iraq has finally led to a technical breakout above this resistance level:
Source: Finviz.com
Now that crude oil’s $105 resistance level has been surpassed, the next price target is the $110/$112 resistance level that marked the peak of last summer’s Syria-induced price surge. If the $110/$112 resistance level is eventually beaten as well, $115 (the 2011 high) is the next “line in the sand”:
Source: Barchart.com
This week’s oil market action is not surprising even though I published a report on Monday in which I outlined several factors that have a high probability of pushing crude oil prices lower in the next few years. In that report, I repeatedly stated that these potentially bearish factors pertained primarily to the medium-term outlook for crude oil prices rather than the short-term future.
In Tuesday’s chart analysis, I stated that I use technical analysis to trade with the trend instead of against it, regardless of what medium-term market fundamentals are saying. If my medium-term fundamental analysis suggests that a bearish move is likely, but my short-term technical analysis suggests that a bullish move is likely, I would side with the short-term analysis when making immediate trading decisions. For now, I would not want to be shorting oil after its break above the key $105 resistance level.
(Disclaimer: All information is provided for educational purposes only and should not be relied on for making any investment decisions.)
Source: http://www.forbes.com/sites/jessecolombo/2014/06/12/crude-oil-just-broke-out-heres-what-it-means/?
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