David Fuller's view

Further to last Friday’s comments on crude oil in my lead item, the Brent contract (weekly & daily) has clearly lost its downside consistency.  This was initially evident from the wider trading range last month, followed by the first clear upward dynamic on the 29^th, and today’s additional rally.  Short covering is clearly underway, plus by some new long position trades. 

While considerably lower prices for crude oil have been forecast by some commentators, this is unlikely because production below $50 is uneconomic for too many oil exporters.  We have now seen a low of at least near term significance and I would give the upside the benefit of the doubt, until this rally is checked by the next clear downward dynamic.  Unless quickly reversed, that will probably mark the onset of pullback and wider trading range, in line with the V-bottom right-hand extension base formation pattern from TCS, which I mentioned on Friday. 

Crude oil is still the world’s most important commodity.  Consequently, even a small recovery in the Brent price will help to reduce a recent headwind for stock markets, given the current concern over corporate profits for oil sector shares.  Additionally, a further rally in crude oil would most likely trigger short-covering rallies in other depressed commodities, and indices such as the deeply oversold Continuous Commodity Index and the CRB Index.  Many commodity shares have already checked their declines in anticipation of these rallies.