Ok..Where is the bottom in crude? That is the 60 billion barrel question! If only we knew...so I had a look at the monthly line chart for WTI and saw that at several major peaks in the past crude then fell 70% before a bottom was formed. OK it's only a small sample statistically and you wouldn't bet the bank on it BUT the new current projection feels somehow right to me (ie 30) It might not be a pretty turn around there but then and only then am I considering going long. Until then it's a short. And one other thing I noticed the more times a prices touches OR passes through a level the more the market seems to respect it. The 30 level has had a lot of touches in the past. The only other level I see below 30 is 20 and if it is going that low I think the world might be a little different than it is now.
Something to consider, shortly after prices reached the 30 level in 2009, we initiated Quantitative Easing. Then prices skyrocketed back to the 100 level. End of 2014, QE finally ended and prices crashed back down now to mid 30's, I think they'll be at 32 by the 17th. QE is over and, likely we raise rates and I do believe prices will be at that 20 level by early 2016.
Yes the price of crude could fall below 30 but I think the 30 level is going to be hard enough to take for almost ALL of the oil producers. And there is actually a growing demand for oil especially with the Brent. But there is plenty of oil to go around so the price is getting softer. The 2 major players at the table, Saudi Arabia and Russia, both keen for prices to increase BUT willing for the levels to stay at 40 playing the 'Who is the first to blink loses' game. This will be test of the Oil Titans to see who will give in first. And you know what? Oil could at 80 dollars a barrel virtually overnight if one thing happens. And that one thing is if Russia joins OPEC or there is a strong rumor that it will. If that event happens then the oil supply can be truly effectively controlled. Abdallah Salem el-Badri almost admitted this was the aim last week. So with that in mind I would like to say if you are short oil (especially over the weekends) It might pay to have OTM calls at say 5 dollars above the current price because if oil jumps on this rumor/fact you will be slammed.
Thanks Zues! Glennjoy regarding production, my understanding is that everyone needs revenue; so lower prices = more oil gets pumped, this will be a long bottoming process. Absolutely agree on the dangers of being short, mainly due to potential geopolitical risks. My short positions are closed out by end of day on Friday's for that reason. Oil prices gapping above stops on Sunday evening could be an ugly scenario. Good trading to you all!