Oil-Price ready for Blowout

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“Tom Swift and his Great Oil Gusher” by Victor Appleton
(Grosset & Dunlap: 1924)

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“By some odd twist, oil gushers have come down in American cultural memory as a form of good news — evidence of riches found, like the popping of some geological champagne cork. (…) The truth, however, is that gushers, which plagued the early decades of the oil business, were disasters anywhere and everywhere they happened. They occurred when oil drillers penetrated a formation where oil and natural gas were under high pressure. The geyser of erupting oil could destroy drilling equipment, kill workers and shatter the eardrums of those it did not kill. Fire was a huge risk. Getting gushers under control sometimes took months.” (Justin Gillis; The New York Times; 21.06.2010)

Back in the days, after a well was drilled, an explosive charge was released down the pipe & set off with the anticipation & hope to crack the rock open in order to increase the petroleum flow into the bore hole. These days, acids are mostly used to achieve larger flow rates. Drillers did not have & use blowout-preventers as they do today to control high-pressure reservoirs. Generally, as soon as highly pressured formations are breached, the hydrocarbon fluids (oil & gas) ascend up the well. Once reaching the surface, the hydrocarbons (now in liquid & gas state) hopefully shoot up many hundreds of feet into the air being a classical sign of a successfully discovered & spudded reservoir. However, as soon as the first hydrocarbons break through the surface & a first small blowout of oil & water is noticed, the shooting typically diminishes strongly & fades away for some seconds before the real blowout erupts highly into the air.

The oil-price gusher started to erupt in early November 2010 as the price broke the (blue) triangle-leg at 82. A short breakout to 88 followed, whereafter a classical pullback to the (protracted) triangle occurred. As per definition, the thrust starts directly thereafter – as the price commenced to rise the last 2 days, a thrust to the upside is anticipated (instead of a thrust to the downside). The goal of this thrust is to rise above the resistance that was marked by the previous breakout (88) & to transform it into a new & sustainable support so that a new & sustainable upward-trend can start.

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The longer-term perspective since mid 2008 shows that the price started a new upward-trend in early 2009 ascending within the (green) trend-channel. In September 2010, the (black) resistance was broken, whereafter a transformation of the (black) trendline into a new support took place. Subsequently, a first breakout occurred that just corrected to the (green) support slightly above the 80-level thus generating a new buy-signal. The next sell-signal is issued when breaching the (black) support currently at approx. 78 with the (grey) 260-EMA-curve (histogram) getting breached simultaneously generating a longer-term sell-signal.

Indicators:

RSI: buy-signal since arriving & holding at the (green) support (sell-signal when breaching it).

ROC: buy-signal since arriving & holding at the (green) support. Sell-signal when breaching it – yet a next buy-signal is then positioned at the (grey) support directly beneath it so that a more distinct sell-signal is generated when breaching that.

MACD: sell-signal since both curves started to decrease recently. Buy-signal when both curves are noted to initiate a rise – potentially after a further short decrease to the (red) support.

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