Oil price collapse – what further ?
Friday collapse of crude oil prices raise many questions. A month ago I wrote an article predicting that this rally is not sustainable and with high probability we should expect last bullish leg and my target on monthly charts was around USD 75 per barrel. Well, it almost reached around 73 and it is pretty accurate considering the timeframe we worked on. The prices turned to falling when Saudi Arabia and Russia announced that they are ready to raise production to face the threat of falling supply from Iran and Venezuela. The fear of U.S. shale also played a part in this with rising U.S. exports to Asia beginning to impact the market share of both Russia and Saudi Arabia in the region.
Price pattern on a monthly charts indicates probability of bearish movement within next weeks and months the level of 49-51. On this way down the most important and strong supports are: 64, 60, 58 – each of this levels could potentially play as a bounce for another jump. Those levels are for medium-term buyers and speculators.
The Iran nuclear deal story and situation in Venezuela could provide plenty of upside opportunities to oil prices. What is more important – the market requires a continued rise in demand from emerging economies and a reduce in shale production to maintain higher oil prices once the OPEC deal expires. On a technical side, therefore, considering next months – I am so far bearish all the way till 51-52 level.
Depending on the price dynamics those price levels might slightly shift, so pls, use discretion.
How to play this view ? Use put options and bearish option spreads to capitalize on this downturn. Futures traders, if not having short positions yet, can sell on major bounce on 64 or after confirmed break-through of 64 support down.
Play safe and have a great trading week !