Wednesday, April 2, 2014

An imminent oil production shock-A strike on Iran in 2015?

As we can clearly understand from oil price chart, oil is in a upward triangle formation





















If oil price manages to breakout from this formation then we will probably see a price around 140$/b (ouch!) as in 2008.
But triangle formations can be very tricky to trade as many times are not continuation patterns but rather reversal patterns.
Something that could help us to clarify our view is the price of oil in gold ounces.



Oil price in gold ounces



















There is a striking similarity of the oil price(in gold ounces) behavior  between 1985-1990 and 2009-2014.
In both circumstances oil had a huge drop then formed a bottom and then had a run towards 233 weeks exponential moving average where it formed a bull flag(red circle).In 1991 as you can recall it was the strike on Iraq that caused a spike in oil price.
We believe that we are now at a similar bull flag and that oil price is about to move significantly higher sometime probably in early next year.
In conclusion we are leaning towards a bullish resolution of the triangle which oil is forming from 2011 on wards, based in Oil price per ounce gold.
What would be the trigger for that kind of oil price movement?
Take your pick:A strike on Iran, Russia-West tensions...?