It was another positive week for crude oil, which continues to develop the bullish momentum I suggested recently. In my last post, I wrote we would see oil move towards $77 per barrel before seeing a pause and possible congestion. For a longer-term view, I have moved to the weekly chart for this analysis, which is revealing.
For regular readers, you will no doubt recall I wrote a series of posts about benchmarking. This is the technique we use in volume price analysis to identify anomalies in the volume and price relationship. On the weekly chart we have such an example. Note the volume and price action from last week. The spread of the candle is narrow but the volume is high. In other words, the spread of the candle has not increased from the preceding days. However, this is not the only point. Compare this volume with that of similar size and note the spread of the price action. It is generally greater and, in some cases, substantially so. From this, we can conclude that last week’s price action was labored with the big operators selling into weakness at this level. We can expect to see a pause and congestion develop. This view is further confirmed by the fact that we are approaching an extreme of the VPOC histogram. Our next step, therefore, is to consider the monthly chart.
Here, too, while we have a short-term sign of weakness with last month’s volume declining longer-term, once we clear the $80 per barrel level we can expect to see oil prices to continue higher and on towards the $90-per-barrel area through the declining volume on the VPOC histogram.
Finally, two further points, last week saw a surprise build in oil inventories, which came in at 4.5m bbls against a forecast of -2.5m bbls. This took some of the shine off an otherwise positive week for crude oil.
Second, there is an OPEC meeting today. One item of news is the cartel has agreed on a 400,000-barrel-per-day-output hike for November, which is supportive of the above analysis.