Is Oil Moving Up, Down, or Sideways?

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". . .pay particular attention to the price action. . .the new trend will be in place before fundamentals demonstrate that conditions are indeed improving for those long oil."

Ever since the bubble burst in oil last summer, OPEC has been feverishly cutting production levels. At this point, OPEC has a goal of cutting 2.2 million barrels a day for this month. However, while the downtrend in prices has slowed, why has the price not rebounded, as some might expect?

Part of the reason is that the economic forecast for 2009 is still grim. Some believe that if the world continues to be stuck in a recession for a large remainder of 2009, the desire or need for crude oil will decrease. Businesses will use fewer resources and consumers will spend less.

The other factor to consider is the new administration in the United States. Will President Obama manage to get both sides of the aisle to agree to a workable energy policy? Considering that most Americans have the memory of paying over $4.00 a gallon for gas fresh in their minds along with the tough economic conditions, this might be the perfect environment to push through comprehensive legislation. How far would he go? This is what bothers the street. The market does not like uncertainty. So, from a news perspective, the oil market is still operating in the dark.

However, things might be slowly turning positive for the oil bulls. There are some indications that the trend may be changing. An argument can be made that a double bottom is forming. A buy signal would be generated at 38.75. However, there is some resistance in the $40 area, so it might be prudent to wait until this area is cleared.

While one should not ignore the fundamentals, pay particular attention to the price action. The market looks ahead. So, the new trend will be in place before fundamentals demonstrate that conditions are indeed improving for those long oil.

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