Crude is caught in a short-squeeze Sunday that seems likely to push the February contract to at least 38.84 over the near term (see inset). The catalyst for the rally is strife between Iran and Saudi Arabia brought on by the latter’s recent execution of a well-known Shiite cleric. Amid torch parties in Tehran Sunday night, here’s the top global headline: Saudi Arabia Severing Diplomatic Ties with Iran Following Execution Protests. I’ve warned here numerous times that although the technical picture for crude remains extremely bearish, brutal short squeeze rallies like the one currently in progress are likely to recur frequently and without warning. This is notwithstanding my prediction of sub-$30 prices, nor the impact at the margin of China’s slide toward recession or worse. If the rally were to surpass the 62.75 peak recorded in May — highly unlikely, in my estimation — that would generate a bullish impulse leg on the monthly chart worth noticing. Anything shy of that number, however, should be regarded as mere noise in the context of a bear market begun from $148 more than seven years ago.
