Oil Taking a Pause
The last few weeks have seen crude oil skyrocket from $68, to its all-time high over $75 per barrel on geopolitical concerns. Unsurprisingly, the market took a pause on profit taking Monday and Tuesday, easing from $75 to $72.88.
Does this drop mean the rally is over? Most likely not, however, some sideways consolidation is to be expected after such an explosive run-up. Even the strongest bull markets take occasional pauses before resuming their previous trend. This type of market action is the most healthy and sustainable as it prevents a meltdown from the market moving too far, too fast.
In my view, oil is still in a bullish trend as long as the price is over $70 per barrel. Oil may even retrace to this point before resuming upwards. If it goes below this point, all bets are off. Here is the chart:
The consolidation may take the form of a rising pennant formation, which is fairly common in a strong bullish move.
There are several strong potential catalysts for oil to resume its uptrend:
1)Wednesday's Department of Energy inventory report is expected to show that crude stocks likely fell on average by 137,500 barrels in the week ended April 21. Closely watched gasoline stocks are picked to fall by 2.4 million barrels. Source.
2)Iran is ratcheting up its defiance ahead of the April 28th U.N. Security Council deadline to suspend uranium enrichment, while threatening to drop out of the Nuclear Nonproliferation Treaty. Source.
3)U.N. Nuclear Chief Mohamed ElBaradei's report on Iran's cooperation with U.N. Security Council is due to reach the Security Council and the IAEA's 35-nation board of governors by Friday. The report is widely expected to be negative, showing Iran's noncompliance. Source.
There are certainly more variables, but these are the main stories which will cause some volatile oil trading.
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