Strategic Oil Reserve Release a Yawner (Crude Already Breaking Down)

Strategic Oil Reserve Release a Yawner (Crude Already Breaking Down)

30 Million Barrels – A Drop In The Bucket

by Carl Swenlin

Last week the administration released 30 million barrels of crude from the nation’s strategic reserve. This represents about a day-and-a-half of our current usage, so it is really just a drop in the bucket and not likely to have a significant effect on the price of oil or gasoline.

On the daily chart below you can see that there was a sharp one-day drop that touched the $90 level, but it closed slightly above Monday’s low. More important, we can see that crude has been falling in price for about seven weeks, and a declining trend been established.

Light sweet crude oil price chart June 2011

Taking a longer-term look with the weekly-based chart, we (who are looking for lower oil prices) get more encouragement as we see that the long-term rising trend line has been penetrated, and the weekly PMO is falling below its EMA — both indications that the decline should continue. Currently, prices are sitting on top of a support zone between 70 and 90, and, while lower prices may be coming, it will probably take some work to eat through that support.

Long term price chart crude oil

Bottom Line: Releasing some of our strategic oil reserve was a tactical move that will probably have little effect on the long-term movement of oil prices. Fortunately, prices were headed lower well ahead of yesterday’s announcement. We can’t argue, however, that the move will probably give the down trend a temporary nudge. As of 5/16/2011 United States Oil Fund (USO) is on a Trend Model NEUTRAL signal, which means we have a medium-term sell signal in a long-term bull market. Being neutral is intended to avoid the decline.

Carl Swenlin is a self-taught technical analyst, who has been involved in market analysis since 1981. A pioneer in the creation of online technical resources, he is president and founder of, a premier technical analysis website specializing in stock market indicators, charting, and focused research reports. Mr. Swenlin is a Member of the Market Technicians Association. CLICK HERE TO SUBSCRIBE