Towards the latter half of last year, oil prices unexpectedly fell. Some of the biggest contributors to this was a perceived slowdown in demand from the East, coupled with a stronger USD, and a subsequent decision of the Organization of the Petroleum Exporting Countries (OPEC) in November not to cut production volumes.
America came to the point when it is even thinking about exporting its oil, while Saudi Arabia has decided to maintain its market share and not to compromise it by lowering production. This all points to excessive supply in the market.
When the excess supply is not met by the correspondingly strong demand, when there are no willing buyers purchasing at high prices, it is logical to see the prices plummet. Technical traders should see this and realise what the prices are telling them, and then they should act accordingly.
There was a rebound in oil prices recently with WTI crude prices are trading at close to $52 level, jumping over 10% from levels seen only a few days beforehand. When a large movement like this occurs and a new trend is on the verge of being created, buyers and sellers are looking for a new equilibrium price levels. However, there is still no evidence of stabilization occurring. Oversupply is still there, Brazil and Iraq are both adding to their productions, and fears remain over China devaluing its currency which would add to the common “race to the bottom” trend around the world. If the Chinese currency is devalued, then overall commodity prices will be heavily affected because the Chinese economy is the largest consumer of the world’s commodities.
Opportunities exist in turbulent times, and technical analysis enables us to see them faster and take advantage of movements as each opportunity arises.