I spoke with one of my more successful clients this morning who happens to be in the crude oil pipes business, and he also trades crude as part of his portfolio. We agreed that, unless a war breaks out in the Middle East, this market may continue to make new lows and remain on the defensive.
Crude futures made some huge moves between 2008 and 2011. The market dropped from highs near $150 to lows near the $30 level to bounce all the way back to $110. These are some very powerful moves both ways.
Between 2011 and 2014 (monthly chart for your review below) the market ranged from $75 per barrel to $100 per barrel. Starting in September of 2014 the market started a nice strong down trend to the levels we are in today.
As I understand the supply-and-demand situation, there is plenty of oil. Cars are getting much more efficient with fuel consumption, and the industrial demand has slowed down in China.
Monthly chart of crude oil:
The only factor that injects some uncertainty is the geopolitical situation in the world. It seems to me that this is the worst environment since I became an adult. There are tensions between so many different countries, groups, etc., one can write a book about it.
At this point I recommend standing on the sidelines with crude oil futures if you are a longer-term trader. The market seems a bit oversold, but if it breaks $32.48 can go below the $30 level.
Most opportunities will be shorter to medium term in this market. Crude oil reacts well to fear and greed.
Look for an initial bounce off the $32 level or failure to do so as your next clues on how to approach this market. In between, just because crude is down 70% from September 2014 does not mean it is a buying opportunity.
Disclaimer – Trading futures, options on futures and retail off-exchange foreign currency transactions involves substantial risk of loss and is not suitable for all investors. Past performance is not indicative of future results. You should carefully consider whether trading is suitable for you in light of your circumstances, knowledge and financial resources. You may lose all or more of your initial investment. Opinions, market data and recommendations are subject to change at any time.
