Those crazy frackers – OPEC now forced to cut

Who would have thought a few years ago when crude was trading above $100 that the Fledgling Frackers in the USA – that everyone was laughing at back then – would come to dominate the entire energy market for fossil fuels?

Today, it is the US shale boys who hold all the aces.

But they have – and here is AEP’s piece today.  I urge all traders who trade crude oil to read it (it may be pay-walled).  Interestingly, he shows that supply/demand is finely balanced and only a small disruption to the flow of supply from a major country would be enough to send prices shooting upwards.

This is how precarious the situation is:

Excess production has been falling for several years and now is at its lowest point.  If most producers are pumping flat out, only a small disruption would send shock waves through the market.

In a panic move, OPEC is meeting soon to thrash out a previously elusive deal to limit production that everyone can stick to (some nations have cheated before). But many more minds are now concentrated on what could happen if they don’t – and the market knows this.  If they can do that and if perchance the shale boys somehow limit their production as well, who know how high the price can shoot.  Perhaps above my main $60 target with a following wind.

But did I know this back in February – April when I started getting interested in trading from the long side and set my main target at $60?  Of course not – most everyone was bearish. But I saw from the charts and sentiment readings that markets were about to make major turns.  As it happened the markets agreed with me, and we have been riding the rally ever since.

And this is a textbook confirmation of my assertion that it is the market that makes the news.  This is now a bull market and US crude is $18 off the lows and the emerging news is getting more bullish.  But when the news gets too bullish, that is when it will turn and you can take profits.  It works like clockwork, but this thinking is polar opposite from conventional analysis.

Interestingly in AEP’s piece, he quotes a Fed member “We predict a large amount of production would come on stream as soon as prices push through the mid-$50s (recent high $52).  I do not see much room for price appreciation“.

In light of the almost 100% record for totally wrong forecasts by the Fed, I would definitely take the other side of that.  That is the kind of thing I want to see to keep me in the trade.

In Saturday’s post, I gave you my analysis based on my Tramline Trading methods – and now we are at the early stages of my purple wave C

This C wave should be a five up with a long and strong third wave.  Let’s see if this appears likely – here is the daily

As I write, the market is testing the Fib 50% resistance and if it pushes through, next target is the 62% at around 48.50.  And if it can overcome that resistance, my next target is the old high at $52.

You can be sure that if/when the $52 target is reached, the news will be pretty bullish!  I can almost write the headlines now.