Sentiment indicators say oil has topped out and is headed for back to $40 a barrel
Kiran Lunez
Mar. 17, 2005

On October 28, 2004 I predicted a tumble in oil price from the peak at $55 at that time, it crashed to $39. Again the sentiments are saying that oil is ready for another tumble back to low forties. It may not go to $20 a barrel due to increased demand and as matter of fact longer term Oil may go to $80 a barrel.

On October 28, I wrote in India daily – Oil is ready for tumble: http://www.indiadaily.com/editorial/10-28d-04.asp

It did tumble to $40 and not to $20. Technical charts can tell the price direction but actual fundamental demand finally takes control. After crash to $40, it has come up again to high fifties.

But for now sentiment indicators again indicate problems in the oil market. There is a shortage of oil but for the next few months, oil supply will be large especially with Iraq coming in strong and Russians as well as Canadians doing excellent jobs.

It seems Oil is ready to come down and stabilize between $45 and $50. It may stay there for a long time before again making the next move towards $80.

Those who are singing oil song may be waiting for a nasty surprise.

When you open the news media and read headlines like : “Oil on the boil, markets in a roil” and then hear Radio and TV that oil is going up –oil is going up, you run to check the same technical charts. And there you find - there are signs of price break down in oil market.

Analyzing money inflow into crude oil futures, it shows, hedge fund managers were buying in the last few weeks while the commercials were selling and heavily hedging. The open interest analysis also point towards some real problems.

According to a classical technical theory oil should go now to $80 a barrel. But the theory fails when extreme sentiment conditions show up. Based on this sentiment conditions, the oil futures will have to first correct, consolidate for long time and them move up if demand stays strong and worldwide capacity utilization is at the current levels.

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