9th February 2012

UPDATE

Technical Fundamental

Oil is reacting at last but is it a buy?

in association with

Disclaimer

Authorised and regulated by the FSA

Oil is reacting at last, but is it a buy?

us@cl.1

147.27 H igh

135 130 125 114.83 H igh 120 115

WEEKLY CHART
The market has rallied hard from the $40 lows in early 2009. The 2011 sell-off found good support at the 50% Fibonacci retracement at $74. Bouncing twice from $74, the market has stagnated around $100. Now look closer.

in association with
H igh 87. 15

103.37 High

103.74 High

110 105 100

90.52 High

95 90 85 80

Low 75.71 50.0%

75 70 65

UPDATE Technical Fundamental

60

55

50

$41.15 Prior High support from the Monthly continuaition chart

45

114.87 High from May 2011

DAILY CHART
40 35

$39.99 $33.70

O N

2009

O N

2010

M A

A S

2011

M A

M J

A S

2012

M A

The stagnation in the week chart can now be seen at a trading range bounded by the 104 Highs and the 93 /4 Prior high and Fibonacci supports. There are 3 latent possibilities in the price action within the range: 1. A Double Top possibly, which would be competed on a breakdown through $93. A bear channel (but which is akin to a bull parallel flag surely) which would be completed on a break up through 100.25. Might there also be a continuation Head and Shoulders on a break up through the possible Neckline at 105.50?

Crud e Oi l L i gh t Swe e t Ma r 1 2

103.90 High 103.20 High

97.93

93.98 High

97.40

1 08 .5 1 08 .0 1 07 .5 1 07 .0 1 06 .5 1 06 .0 1 05 .5 1 05 .0 1 04 .5 1 04 .0 1 03 .5 1 03 .0 1 02 .5 1 02 .0 1 01 .5 1 01 .0 1 00 .5 1 00 .0 9 9.5 9 9.0 9 8.5 9 8.0 9 7.5 9 7.0 9 6.5 9 6.0 9 5.5 9 5.0 9 4.5 9 4.0

2.

38.2%

9 3.5 9 3.0 9 2.5 9 2.0

90.00 High

9 1.5 9 1.0 9 0.5 9 0.0 8 9.5 8 9.0 8 8.5 8 8.0 8 7.5 8 7.0 8 6.5 8 6.0 8 5.5 8 5.0 8 4.5 8 4.0 8 3.5 3 00 00 0 2 00 00 0 1 00 00 0 0

3.

Note the good volume on the recent rally. On a break of the $100 diagonal, expect a test of the Pivotal Highs band at 103.20-90

Disclaimer

17

24

1 8 N ov ember

15

22

29

6 D ecember

13

20

27

3 2012

10

18

24

31 7 February

13

20

Oil is reacting at last, but is it a buy?

in association with

UPDATE Technical Fundamental

FUNDAMENTALS: Apart from being an almost indispensable resource globally, oil also acts as a bellweather in two ways: 1. The rise and fall of geopolitical tensions generally has a direct impact on the oil price especially when linked to oil producing regions, and 2. The oil price will rise or fall in reaction to the health of the global economy due to the impact that has on energy demand. After a sell-off throughout much of last year, driven by concerns about the health of the US and global economies together with the deepening Euro zone debt crisis, oil began a rally that started early in November 2011. This was driven by a run of strengthening US data releases that pointed to a pick up in the US economic recovery. Although the Fed continued to voice its concerns about the fragility of the recovery and was concerned the Euro zone sovereign debt crisis held the potential to tip the US and global recovery back into recession, traders responded to the expected impact a stronger US economy would have on energy demand by taking the oil price higher. At the same time, the long running stand-off between the major powers and Iran over Irans nuclear program moved back to centre stage as estimates about how long it would take Iran to develop a nuclear weapon were cut.

Iran also stoked the tension by test-firing longer-range missiles that could potentially carry a nuclear warhead, prompting the US and her allies to enact stronger sanctions in the hope the Iranian regime would enter into serious negotiations.

Oil is reacting at last, but is it a buy?

FUNDAMENTALS: CONTINUED
in association with

Alarmed by the prospect of a nuclear armed Iran, which is openly hostile to Israel, rumours started circulating once again about Israel planning a unilateral strike on Irans nuclear facilities. But, despite all of this tension, and the on-going improvement of US economic data, the oil price has failed to build on those early gains. Over recent weeks the market appears stuck in a sideways trading range, and may actually have lost its bullish momentum, but surely a sell-off in oil now would run counter to the forces supposedly underpinning it, or would it? The US economy is printing stronger data. Only last week Non-Farm Payroll reported a healthy jobs gain with a drop in the unemployment rate and the ISM non-manufacturing survey came in much stronger than expected. The Euro zone crisis hasnt gone away, but recent data releases there seem to show the chances of recession have receded with the German economy still performing strongly. And the geopolitical scene hasnt changed much either, the US and EU have implemented strong economic sanctions that basically prevents the purchase or Iranian oil and the regime remains defiant about its right to pursue a nuclear program that they claim is for electricity generation. But what about oil demand. The IEA has recently revised down its forecast for global oil consumption, and revised up its estimates for oil production. Additionally, the US is developing various domestic sources of energy reducing her reliance on imports. So where now for oil? We judge the standoff with Iran would have to turn hostile to send oil prices higher in the short/medium term meaning more frustration for the Bulls is likely. But given the risks would you go short?

UPDATE Technical Fundamental

in association with

UPDATE Technical Fundamental

SEVEN DAYS AHEAD Authorised and Regulated by the FSA 124 REGENTS PARK ROAD LONDON NW18XL TEL +44 (0) 7849 922573 E-MAIL msturdy@sevendaysahead.com, pallwright@sevendaysahead.com WEB SITE SEVENDAYSAHEAD.COM The material and information set out in this research is not intended to be a quote of an offer to buy or sell any financial products. Any expression of opinion is based on sources believed to be reasonably reliable but is not guaranteed as to accuracy or completeness. The material and information herein is general and for informational purposes only. Although Seven Days Ahead endeavours to provide useful information they make no guarantee as to the accuracy or reliability of the research. The derivative market comprises volatility and considerable risks. To the maximum extent permitted by law no responsibility or liability can be accepted by Seven Days Ahead, any company or employee within its group for any action taken as a result of the information contained in this presentation. You are requested not to rely on any representation in this research and to seek specific advice from your accountant, legal adviser or financial services adviser when dealing with specific circumstances.

Seven Days Ahead is regulated by the UK Financial Services Authority.