When oil cannot move with good news….

Since hitting bottom in Feb, crude oil has bounced back strongly with over 60% gain in just a few weeks. A rather impressive move for sure. After touching $46 just a few days ago, the heat for oil is cooling down a bit. I think we likely have seen the high for oil for a while. Technically oil is showing a double top with a near term bearish head and shoulders formation as well as a negative divergence for its momentum, MACD. Now we also have a more fundamental signal for this  bearish call.

 

Not sure if anyone notices that there is a huge forest fire raging in Alberta, Canada. If you are not aware what Alberta means for oil, it is the center for the Canadian oil production. It is estimated that this fire will cost more than 18% of Canada's total oil production, or a loss of 800,000 barrels of oil that will be offline per day. This is a huge loss by any means for oil supply and it should make oil price shooting to the moon. But it barely moves the needle for oil prices. As the Street often says, when good news cannot move prices up, it usually means the top is in for whatever the prices are for. In this case, I think a near term top has already been priced in for oil. Let’s face it, the world is simply having too much oil that the economies around the world cannot consume. When a major catastrophe like this cannot move oil up, it indicates how out of whack it is regarding the supply-demand balance at the moment.


Don’t be surprised to see significantly lower oil prices in the next few months. We may have seen the top for oil for this year already!