While supply issues are most certainly a major problem, the reality is that if there is no demand, it doesn’t matter.
Now that we find ourselves stuck between the 50-Day EMA and the 200-Day EMA, it does make a certain amount of sense that the market is getting ready to squeeze for a bigger move. The question of course is that the market is trying to answer is whether there will be global growth and whether the 2 million barrel per day production cut coming out of OPEC is going to truly hold pricing higher. While supply issues are most certainly a major problem, the reality is that if there is no demand, it doesn’t matter.
If we break down below the 50-Day EMA, then it’s likely that the $85 level will be targeted. The $85 level is a large, round, psychologically significant figure, and an area where we have seen a bit of flipping from time to time. If we break down below that level, then I think it’s likely that we will continue to see there is pressure and an attempt to break down too much lower levels. That’s probably asking a lot, but at the end of the day, anything is possible.
On the other hand, if we do break above the 200-Day EMA, that will probably bring a lot of algorithms into the market, perhaps sending more money into the marketplace to push the oil markets up to the $100 level. I suspect that breaking out of this down-trending channel is the first of many attempts to go higher. It’ll be interesting to see how this plays out, but right now I think we are during making a big move. With this being the case, I suspect that we should be cautious with their position size unless we take off to the upside. Ultimately, this is a situation where caution is the better part of valor.