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.
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.
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 DecisionPoint.com, 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