There are a few key factors to take into account: slow global growth, a decline in global demand growth and a supported dollar.
As posted here and here, near-term resistance is near $38/bbl which has been tested and failed twice in the last two days. Technical breadth still remains negative, and the lower have of the is the next area of support between $33-34/bbl.
If the bottom of the range breaks, $27 is open for the taking. As mentioned in August:
"On a market technician's viewpoint, if fundamentals do not shape up quick with support from consumption economies, like the U.S. and China, crude could break 2009's low of $33.20 per barrel.
I also expect the dollar to continue to rise, increasing deflationary pressure throughout 2016.
Price support is currently $42.02, just $2.22 per barrel less from where it is trading today. 2008's high of $147.27 per barrel creates a "V" shaped , which will likely hold prices.
If prices break through this key , selling could amplify if there is no catalyst to bring prices back north. A "demand" zone - an area where confirmed buying took place - between $38.34 and $34.04 will be the last line of defense for crude prices.
A close below this level, and a target of $27.14 per barrel is initiated."
Take it back further to last February:
"A bottom in crude will be formed when a series of indicators and data show confluence."
"Growth has been lacking, and it is concerning that China – the largest consumer of oil – is showing real signs of trouble. GDP recently hit two decade lows, and the most recent import/export data is troubling. China saw a 3.3 percent decline in exports and a whopping 19.9 percent decline in imports YoY, the worst since 2009. It was was 16 percent lower than the general consensus.
There is also disinflation. Whether it is in the US, Eurozone, or China, prices for will remain low. Crude is no exception.
A bottom in crude will not likely begin until fundamentals mingle with price action. Inventory builds of 5, 6, 10 million barrels per week will not help the case for higher prices, and oil companies could be forced to further slash rigs, jobs and CAPEX.
And considering the deteriorating economic data, more so in the US, 2008’s low could be retested."
If bulls could retake momentum, upside potential could reside at $42.75 and, potentially, $48.55. The situation remains dynamic as an unexpected production cut from a large producer could spark huge short-covering (unlikely to change long-term sentiment). Although, OPEC and Russia look to remain active, while production in the US is still near historical highs.
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However, I'm kind of looking at this in a macro sense. There is barely any growth worldwide, and that's expected to continue to decline. I'm still looking at a recession in the US between Q2-3. If we look back to the great recession, deflation occurred and crude consumption cratered.
I think a 2009-14 rally can happen if: large producers significantly cut production, massive US shale consolidation, large increase in inflation or a rebound in growth, or a combination of a few.
We have to keep in mind, this is oil while the world is growing. What happens when it's not? Who knows. Definitely important to remain nimble.
If 2014 high is taken out, $105 on the DXY is next stop more so if the Fed keeps blabbing about rate hikes when combined by global fx devaluation.
It's quite possible, and if you look at historical SPX multiples, the most compelling reset point is around 10x P/E