Wednesday, April 8, 2015

The Real Problem With Crude:

The collapse in the price of crude that began back in July 2014 has been blamed on several fundamental problems. Some experts point to US over-production due to hydraulic fracturing (also hydrofracturing), others blame Sunni vs. Shia political / crude production conflict and others blame slowing global demand.

Our chart displays the price of crude – monthly spanning about twelve years plotted above the U.S. dollar index. Note the obvious inverse relationship with each price peak in one lining up with a price trough in the other.

Note the 2008 financial price trough in crude and the respective 2008 financial price peak in the U.S. dollar – and note the current price levels marked as (A) and (B). Crude did not break below the 2008 low to “confirm” the recent dollar price break to (B). This appears to be a positive divergence setup which means that a crude price below $40 is not likely.

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