WTI closed the week strong – fueled by the promise of more cuts from SA and the possibility of US sanctions on Venezuela & the consequent supply disruptions the sanctions can cause. This is going to a tough week for both bulls and bears as all eyes will be on the Venezuela situation.
Venezuela was once a rich country but is currently in absolute chaos & abyss. Amid violent protests from the opposition and citizens who are demanding democratic norms be upheld, Venezuela is voting today (July 30) to elect a legislative body tasked with rewriting the constitution. President Nicolas Maduro has predicted a big victory in the election of the 545-member citizens’ Constituent Assembly empowered to dissolve the opposition-controlled parliament and rewrite the constitution. Many countries are not in favor of Maduro rewriting the constitution and the US has threatened an embargo if Maduro doesn’t return to more democratic ways of running his government. Venezuela currently produces about 2M bpd of oil (and is heavily dependent on oil exports for their survival) and a US embargo would put them at great peril. This is not a “possible risk” like the N Korea situation but this is a “clear & present risk” for the short term at least as the voting is under way today, amid violent protests.
So I would expect this week to be highly volatile. Good to keep away from WTI for a few days until the situation clears up. On the technical front, Oil closed the week pretty strong – above both the 200 Week MA & the 200 DMA. While this makes WTI bullish for the near term, it continues to be bearish on the long term charts. (Please refer the earlier blog post dated July 27 below as to why I consider WTI long term bearish).
Here is the CNN link for live updates on Venezuela: http://www.cnn.com/2017/07/25/americas/venezuela-on-the-ground/index.html