Intermediate uptrend for WTI with resistance at $97.50 – $98.00 zone

The above two-year weekly area chart (shaded area) for West Texas Intermediate crude shows the near-term and intermediate uptrend. The major trend is down. WTI is trading above the 50-day (blue line) and the 200-day (red line) simple moving averages and the 50-day has crossed above (golden cross) the 200-day moving average. The current resistance level is the $97.50 to $98.00 price zone.  This is the near-term price at which traders take profits. If WTI can breakout above $98.00, the major resistance zone will be the September, 2012 close of $99.01. And the even number of $100 around the intraday high of $100.42 would also be a major resistance level.

Brent crude is the  the world standard (Europe and Asia) for crude oil pricing and West Texas Intermediate is trading at a discount relative to Brent pricing. I have charted the differential in a previous post.  One could argue that WTI is trading in a sweet spot providing a reasonable profit for U.S. based oil companies while not a threat to increased inflation.  It is a different situation for Canada where Western Canadian Select is trading at a $30.00 (rounded) discount to WTI which in turn is trading at a discount of $20.00 to Brent.  There is no need to shed any tears for big Canadian oil companies like Suncor which are still generating positive cash flow at current pricing levels.  But, from an investment perspective; world class oil companies in the U.S. and other countries will attract the investment dollars.  An investment in Canadian oil companies is “dead” money for the intermediate term.  Pipelines cannot be constructed overnight to transport crude. And, then there is the depressed price for North American natural gas.  LNG terminals are expensive and controversial.

There are a number of factors that affect the price of West Texas Intermediate:

1. Supply and demand balance
2. U.S. Dollar — WTI normally has an inverse correlation to the value of the U.S. dollar
3. Supply  — there is currently a glut of oil at the  Cushing, Okla caused in part by pipeline constraints
4. Supply — surging production out of the Bakken fields in North Dakota and Saskatchewan
5. Supply — hydraulic fracturing is increasing production
6. Supply — geopolitical risk associated mostly with the Middle East — one known-known is Iran
7. Demand — tepid U.S. GDP growth in the the 2% range
8. Demand — single digit GDP growth of  7% to 8% for China

Reference the last chart analysis for WTI highlighting the price differential versus Brent.

Relevant articles picked from the Web:

• Keystone XL pipeline decision coming soon, Kerry says — Globe — February 9, 2013
• Oil’s slide makes slippery going for investors — Globe — February 7, 2013

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