Flash Crash in Oil Still a Mystery; Spain Balks

Published on September 18, 2012 by in Energy

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Flash Crash in Oil Still a Mystery; Spain Balks

Oil traders everywhere are trying to place an answer to the flash crash that occurred Monday afternoon. Many theories have been advance. Some of them include a hedge fund liquidation, a fat finger mistake and the most plausible reason was HFT or high frequency trading. The violence of trading following the plunge was wild and costly for those on the wrong side of the market. However, it was revealed late Monday that the Saudis have increased their output to offer prices lower. There is a two prong approach to their reasoning. They want the oil price down to assist in a sloth like global economic recovery, but also the lower the price the more injury to their nemesis, Iran. The political fallout from the sanctions is beginning to be felt by the populace and the Saudis hope to foment dissent.

Crude is again lower this morning following the revelations above and Spain’s reluctance to embrace the EUIMF bailout plan. Thus far they have refused to ask for help from the ECB. They are concerned that the conditions attach will be too onerous for their economy. This has put risk investors on alert. Additionally, polls taken in Germany show the populace 65% of which favor Germany without the euro and 49% actually favor Germany out of the EU all together. France is not too much different. Their 64% are apposed to the Maastricht Treaty.

The underpinning of geopolitical conflict in MENA (Middle East, North Africa) has kept the bulls in an uncomfortable position for now, but they are pinning the hopes on higher prices to the 100 week moving average at the low of Monday, 94.65.

CRUDE: Hi: 97.23; Low: 95.96

Although the bullish factors in the geopolitical arena continue to support the hopium premium is being removed from the market. We see this process having more to come. Oct will have a test of 94.65 like Tuesday. Our primary model calls for an inside day, but we do not rule out more weakness developing. Oct will have minor upside pivot at 96.65. It will need to get above that level to neutralize the bearish outlook. However, the key upside pivot to the intraday chart is 97.50. The 100 WMA at 94.65 should still continue to support, although a drop to 94.25culd be seen on an overthrow. However, a daily settle below 94.65 is very negative. We are a seller of the rally.

BRENT: Hi: 114.92; Low: 112.59.

The thoughts of an SPR release are constantly in the back of the bull’s psyche. This is keeping Nov with a negative short-term pattern. Nov will have resistance at 114.25 to 114.50. The minor upside pivot is 114.65. The key upside pivot to the intraday chart is 116.00. We are in a sell the rally mode.  Ideally around the 115.50 area with a protective stop above 116.00.

RBOB: Hi: 2.9689; Low: 2.9298

This is a tricky pattern. It is probable that 2.86 will not be removed this week. It was a huge plunge that may be tested, but all things being equal will stand for the week. Nevertheless that does not mean that Oct will not slip from the 2.97 area. But the fact that it was able to move this high removes the potential for a new low in the very short-term. Oct will have a minor downside pivot at 2.93. With a break of this level a drop to the 2.9050 to 2.90 zone. However, key support is on a two point trend at 2.88.15. Key resistance is found at 2.9950 to 3.00. We neutral of this market.

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