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morbius glass: Energy markets, Commodities and Geopolitical analysis. Energy Market Watch: Oil price spike

Posted by Adrian on September 23, 2008

As I discussed in the post Oil lower, volatility market reaction. Oil now showing price instability. Could the mother of all oil shocks be brewing? (dated August the 13th). Analysis was made arguing that the oil price is showing price instability as it fell heavily from September the 1st 2008 closing at 111 to its low price of 90 on the 16th September 2008. The spike occurred on the 22nd September 2008 when trading began – touching 130. The large spike is a mixture of various reasons, traders covering short positions, the USD losing value, inflation and the possible bail out of the whole US banking system – which will effect the USD, contributing to the massive US account deficit and fanning inflation.

Although I wouldn’t call this a ‘mother of all price shocks’, I would say that the indication of a larger spike is on the cards. As long as you have over regulation in the markets, particularly the hysteria of banning short selling. If this spike was a squeeze on covering short positions, the other main reasons would be the USD falling and the market shifting funds out of stocks back into commodities. Again this is indicating dreadful interference by the Federal Reserve and Treasury – which are both responsible for causing wild swings in the market.

Regardless the commodity markets are now locking in long positions.

From a technical perspective in regards to CCI refer to WTI crude chart below, (please click for larger image)

Note the price irregularity on the CCI (2), as it bounced off the -50.00 – very thin trading and unstable. Hence the straight breakout. Formula for the CC1 (2) as follows: 91 (3mths) / 32 x 12 / 7days = 4.87. This gave a nice tight range for overbought and underbought signals; and clearly indicates a restrained under bought signal.

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