I am writing you today from the maternity ward, the blood in my veins has turned to pure caffeine as I’m getting a little less sleep than I would have imagined.
My wife and baby are resting but right now I cannot, and will not, because the price of oil is making a move, which if confirmed, is setting up the next big bull leg in what I’ve called “THE BIG LONG”.
(I wrote a full article on the thesis).
Ever since making its highs back in March and April, Crude oil has been in a descending trend, as you can see above.
This formed a line of resistance which held up 4 times, as volume trended lower throughout.
Every rally since March has been capped. Today WTI is pushing 88, above the line for the first time in six months, and Brent settled $92.13.
The suppression tool is nearly out
I explained how the price of oil gets manipulated and suppressed by the US government in a separate article (which you can read here).
Among floating oil, producer hedging, and other factors, the SPR drain has been a source of supply that’s been keeping a tab on oil prices.
The Strategic Petroleum Reserve’s short term peak occurred at 415 million barrels on 20 March. It was 289 million on 21 August. That’s 125 million gone in 22 weeks, 40.6% of design capacity, and the lowest level since November 1982.
The release rate has halved, from 8.9 million barrels a week in May to 4.5 now.
On Saturday President Trump announced the reserve gets refilled with Venezuelan crude “very shortly.” The SPR can’t store Venezuelan heavy oil. Even if it could, Venezuela only produces 1.25 million barrels a day in total against a hole north of 400 million. Any meaningful increase would come a decade from now.
The whole announcement reaked of desperation and nobody bought it.
Yet nobody is long!
This is the part that still tells me everyone is asleep at the wheel and only just waking up.
Managed money net length in WTI was 84,020 contracts last week. That’s 12th percentile of the decade. Crude went from $56 in January to $119 in March, dated Brent printed $140, and speculative length peaked for the whole year at 99,887 contracts in April.
The fast money never showed up. Everyone has always faded this conflict, and the situation never resolved.
This means that there is no wall of underwater longs waiting to sell into strength, because the position was never built.
The bag has no holder, so upside resistance is becoming very limited.
What the technicals reveal about the price.
Technicals are sometimes La-La-Land lines. Sometimes they reveal market structure.
Multiple touches on a descending resistance line means supply is overpowering demand at ever lower prices. That’s the textbook read and it tells you nothing about the seller.
Resistance is resting supply.
Whether the resistance line holds depends on whether the source of supply is:
A. a replenishing pool, or B. a depleting pool
With oil there are both types.
Oil coming out of Hormuz is a replenishing pool. It went from being a 20 million barrel a day pool to a 5 to 10 million barrel a day pool. The replenishment is impaired. Producers hedging forward production is somewhat replenishing too.
Floating barrels, the SPR, and trapped longs from the prior spike are all depleting pools. I’d argue the coordinated blue pilled sellers who believe the admin’s headlines are a depleting pool as well, since their trust in their overlords eventually wanes.
So the question is whether we’re in a market structure dominated by sellers from a depleting pool or a replenishing pool.
The volume gives you the indication. Every hit of the resistance has come on volumes that are declining.
That suggests supply exhaustion, especially taken together with the higher lows, because buyers are coming in on ever more shallow pullbacks. $67.04 on 2 July. $74.24 on 5 August. $79.62 on 26 August.
Today’s break came on the lightest volume in weeks, which is what we can expect like when the pool has run dry. Whether we retest the line before ripping remains left to be seen, but THE BIG LONG has never been in such a good position.
Babylon Burns Launch Discount Ends on September 8th (Tic, Toc, goes the clock)
It is not too late to pick up the founding rate at $299, against $399 from September 8th.
When you join today, you’ll receive all my oil picks, all the research I’ve published so far in the past 3 months, and the model portfolio which has already produced plenty of picks which are paying off.
You’d probably have earned back your membership dues by now already.
Plus, if you sign up to the annual membership, you’ll get automatic access to the web application (mobile app to follow soon), giving you in real time notifications every time I make a trade.
You’ll see when our positions get stopped out, when I add to positions, when I take profits.
It’s the perfect companion for membership which seeks to give you insight into how I, as a portfolio manager, run a global equity book.
So join now, it’s risk free, Substack give you 7 days to get a refund if it isn’t to your suiting.
Are you seriously gonna miss out on THE BIG LONG for less than $1 a day?
So, moving towards today’s transactions. I’ve been adding to some of the 16 names which I gave away , and adding 2 lesser known positions which I think are looking very good.
