THE END of the FOSSIL FUEL AGE?[MULTI-FACTOR Simple Crude Guide]
Updated
Brief analysis on crude in 3 bullet points(chart will be updated continuously); Series on Commodities - 21st of November
I do realize most people trade oil on daily frames. Oil prices heavily impact global growth, and this is the primary purpose of this chart. It's a necessity and it's essential to know the macro trend, even in trading. Before I get into the chart technicals, these are the few fundamental bullet points analysing demand and price action for the next 10 years:
1. Crude is expected to have an average drop of approximately 10% annually in demand going forward to 2025(by multiple sources). This is nothing unexpected. Demand from emerging economies is still growing (India), however, more and more economies that are currently heavily dependant on crude are looking for alternatives (China). Overall, this should have quite a negative effect on crude. This can easily be seen by the performance of the whole energy sector(XLE):
2. Currently we are in the late cycle(Ref #1, Fed rates analysis), and since the demand for oil is heavily cyclical, I am expecting that based on these current economic conditions- the global economy should linger until the 2020 elections, before something major occurs(arrows guidance on the chart). This is my investing tree for oil for the next 5 years for oil: ibb.co/K0T2n61. Geopolitical risks are included in the chart.
3. In terms of the supply, OPEC is certainly weakening. This implies that these countries have an incentive to push supply even further, i.e 2014. Moreover, crude production in the US has doubled. On the other hand, the rise of renewables as one of the outcomes of the last recession has been exponential. Nevertheless, we'll get to a point when lithium will certainly become too expensive. That's just how cycles work. My hope is that as the outcome of the next cyclical downturn, we will start focusing on nuclear energy, and develop safe and cost effective models(referencing small modular reactors here-SMR's). Additionally, further enhancing the efficiency and use of other biofuels should be a must.
To wrap up this oil investing guidance, it should be quite simply, since oil's correlation to the cycle historically is extremely high(depending on the cycle ~70%). There's evidence this has somewhat changed recently, perhaps because of the rise of renewables. The ESG trend should continue to grow exponentially. Nevertheless, oil consumption will never completely phase-out. The technical side of the chart is well labelled, it should follow the pitchfork, this is one of the better ones I've drawn so far. We are currently in a rising wedge, the outcome of the 2020 election should give a clue of the direction we're going. Currently it's neutral, leaning bullish. For the past 120 years, oil prices have behaved in ~29 year cycles, which would give us the bottom of the cycle at around ~2025.
-Step_ahead_ofthemarket-
________________________________________________________________________________________
>>I do not share my ideas for the likes or the views. This channel is only dedicated to well informed research and other noteworthy and interesting market stories.>>
However, if you'd like to support me and get informed in the greatest of details, every thumbs up and follow is greatly appreciated!
References and Disclosure
1. FED rates Supercycle :
Disclosure: This is just an opinion, you decide what to do with your own money. For any further references or use of my content for private or corporate purposes- contact me through any of my social media channels.
I do realize most people trade oil on daily frames. Oil prices heavily impact global growth, and this is the primary purpose of this chart. It's a necessity and it's essential to know the macro trend, even in trading. Before I get into the chart technicals, these are the few fundamental bullet points analysing demand and price action for the next 10 years:
1. Crude is expected to have an average drop of approximately 10% annually in demand going forward to 2025(by multiple sources). This is nothing unexpected. Demand from emerging economies is still growing (India), however, more and more economies that are currently heavily dependant on crude are looking for alternatives (China). Overall, this should have quite a negative effect on crude. This can easily be seen by the performance of the whole energy sector(XLE):
2. Currently we are in the late cycle(Ref #1, Fed rates analysis), and since the demand for oil is heavily cyclical, I am expecting that based on these current economic conditions- the global economy should linger until the 2020 elections, before something major occurs(arrows guidance on the chart). This is my investing tree for oil for the next 5 years for oil: ibb.co/K0T2n61. Geopolitical risks are included in the chart.
3. In terms of the supply, OPEC is certainly weakening. This implies that these countries have an incentive to push supply even further, i.e 2014. Moreover, crude production in the US has doubled. On the other hand, the rise of renewables as one of the outcomes of the last recession has been exponential. Nevertheless, we'll get to a point when lithium will certainly become too expensive. That's just how cycles work. My hope is that as the outcome of the next cyclical downturn, we will start focusing on nuclear energy, and develop safe and cost effective models(referencing small modular reactors here-SMR's). Additionally, further enhancing the efficiency and use of other biofuels should be a must.
To wrap up this oil investing guidance, it should be quite simply, since oil's correlation to the cycle historically is extremely high(depending on the cycle ~70%). There's evidence this has somewhat changed recently, perhaps because of the rise of renewables. The ESG trend should continue to grow exponentially. Nevertheless, oil consumption will never completely phase-out. The technical side of the chart is well labelled, it should follow the pitchfork, this is one of the better ones I've drawn so far. We are currently in a rising wedge, the outcome of the 2020 election should give a clue of the direction we're going. Currently it's neutral, leaning bullish. For the past 120 years, oil prices have behaved in ~29 year cycles, which would give us the bottom of the cycle at around ~2025.
-Step_ahead_ofthemarket-
________________________________________________________________________________________
>>I do not share my ideas for the likes or the views. This channel is only dedicated to well informed research and other noteworthy and interesting market stories.>>
However, if you'd like to support me and get informed in the greatest of details, every thumbs up and follow is greatly appreciated!
References and Disclosure
1. FED rates Supercycle :
Disclosure: This is just an opinion, you decide what to do with your own money. For any further references or use of my content for private or corporate purposes- contact me through any of my social media channels.
Note
Receiving some positive feedback already from this idea, any critics are very welcomed!It's just a brief analysis compiling all the relevant factors. If each figure(ex. supply, demand, number of raffineries etc) is analysed could write a whole book about it.
If you have any comments make sure to share them here, or just message me directly.
-Step_ahead_ofthemarket-
Note
Weekly chart update.
Note
To clarify the trading strategy.It's mentioned in the analysis that oil is currently neutral. That's because the R/R is currently somewhat even.
From the weekly chart above. At the current price of 55, drop to 20~ +63.63%(if short). Rise to 90 will mean ~(63.63%).
In the short to medium term there are still some bullish tendencies if a US/China deal gets done. In which case, as the price moves to 84$ the R/R will squeeze to the bearish side. In addition, there should be extra volatility as the 2020 Elections near.
Note
Just a thought provoking update:Question is, what's the absolute potential upside for the SPX in 2020. Best scenario, a deal gets done phase 1 and even if we have 2 more rate cuts to 1%, it would be +10-15%, to ¬3500ish. Even this is a stretch. But there are not sellers either, because the downside is limited mostly by QE. Meaning, expectations should be that market will be sluggish for the next 1-1.5 years before something major occurs.
-Step_ahead_ofthemarket-
Note
If crude breaks 50, we could see it go down to 40 again. Early summer, expecting another round of fiscal and monetary stimuluses globally. So, perhaps there will be another bounce off the 40 levels.
_step_ahead_ofthemarket_
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