14/12/2015 Oil, Russia and World War 3

Hello traders,

Well its the time of year to be jolly…but as is usual, my contrarian streak emerges and I’ll pour cold misery on your thoughts of peace and goodwill to all men!

Take a look at my weekly Crude Oil chart above. A beautiful sight…if you’ve been selling Oil! I myself have never been an Oil trader. I watch and keep an eye on it (for intermarket analysis reasons) but trade it very rarely.

However you can see that price has being going one way since summer of 2014. We’ve gone from approx. $100 Oil in July 2014 to hitting new lows of $35 this week.  That’s quite a move, I’m sure you’d agree.

In Dublin last week I spoke about how in October of 2014 I was sat on a panel of institutional traders and analysts who all claimed that Oil was now oversold at $80 and that it would be a great place to buy. I on the other hand said that as long as the market was going down I’d want to still be a seller. Thankfully sticking with the dominant trend was the right thing to do! (I also wonder how many of those institutional traders and analysts loaded up on oil at $80?!?)

Now of course there are all manner of reasons as to why a) the move happened and b)why its continued so long and c) why it keeps hitting new lows.

My own reasons are to do with that other theme that has been in my blogs for the last 18 months, namely Russia, Putin, its economy and the Rouble.

Take a look at the weekly chart of the USDRUB:

I wouldn’t exactly say its inversely correlated to the Crude Oil price….but its not far off. For the last 18 months as Crude Oil has collapsed, so has the RUB against all major currencies.

A lot of that I believe is to do with a larger geo-political move to remove Putin from power by putting pressure on the one thing he cant control and is most in need of. He cant control the price of Oil (which is priced in USD) and he needs those oil dollars desperately. Firstly 70% of Russia’s tax revenues come from energy. Secondly his power base is heavily invested/involved in energy, so you make them unhappy then they’ll put pressure on him. Finally his own personal wealth (from the open-source intel and the rumours I’ve heard) is heavily invested in Russia’s energy companies.  I believe there’s been a concerted effort from ‘global players’ to undermine him and put him into a position of serious pain.

He responded the only way he could…by using his military strength to join the party in Syria and discredit the US and EU initiatives.

I was reminded of this earlier today when I read about a Russian ship firing on a Turkish ‘fishing boat’. This comes after Turkey downed a Russian Su-24 bomber a few weeks back. All of it just makes me worry about the whole end-game that may well be playing out.

Nevertheless we are traders and as traders we just look to see what opportunity it provides us. So personally I don’t see Oil launching itself back to the moon anytime soon. Whilst there will be bounces and occasional moves north, I just cant see the geo-political situation changing to the extent that they take their foot off Putin’s throat. So I expect the Oil price to stay under $50 and perhaps even $45. I also think we’ll see weakness in RUB continuing (which just adds to Putin’s woes).

As a final chart lets take a look at the weekly chart of USDTRY:

Its not been a great 18 months for the Turkish Lira either – its been battered across the board and especially by USD. They are feeling the pain of the markets as well (perhaps that’s why they’re allegedly buying cheap Oil off ISIS/Daesh – well, that’s what Putin and Russia are saying!)

You can see this is all getting very messy isn’t it?

Whilst I believe that we may see some weakening of USD as part of the raising of rates I think that we’ll still see USD strength against the BRICS/EM currencies for some time to come.

Anyway on that cheery, up-beat note I shall let you all return to your Christmas partying. Its enough to make you want to drink a large brandy anyway!

Trade well,

Paul

***Update 15/12/2015: Turkey says there is a limit to it’s patience with Russia.***

***Update 16/12/2015: Putin gives his annual conference on Thursday 17th – could make for interesting TV.***