If oil is an indicator of global economic outlook, then it is in sync with just about all the other signals we are seeing. This is good news for those who ‘short’ but as most analysts and traders look to markets heading higher to make money, few will find any good news in what has been happening in global markets over the last three weeks.

Let’s consider two charts for light crude.

(Due to travel commitments I have had to submit this editorial ahead of the normal deadline, so the charts below are based on last week’s data. And another few day’s data will not change my outlook anyway.)

So to a daily:

click chart for more detail
click to enlarge

And a weekly:

click chart for more detail
click to enlarge

It seems there may be more falls in store for oil, maybe down to the $60-70/barrel. This is not surprising, as no matter what view one might have about uncertainties in the USA and Europe, there are currently few positives for global production.

A falling American dollar means more expensive imports for China and therefore some easing of Chinese exports. This may not grind China’s factories to a halt but there will be some impact. I expect China’s GDP to ease but not fall through the floor.

The weekly chart indicates the oil price may retreat to 2006 levels. A stable oil price – as the weekly chart is suggesting – would be a positive but is not enough on its own to kick-start the global economy.

What we need are signs of growth and confidence, although I can’t say which of these is the chicken and which is the egg. Until we have both, the lending crisis cannot ease. There is plenty of money in the world but some might say it is in the wrong hands. Lending institutions are cautious to say the least, while China (and other countries with high-growth GDPs) don’t want to place further trust in wayward Western economies.

And so we have a stand-off. On that basis, what happens to oil in the short- to medium-term could count for little.

Enjoy the ride

Tom Scollon

Chief Analyst