A Fundamental and Technical View of Oil Prices

Markets were clobbered in the last few months of the year.

The Dow Jones Industrial Average plummeted from nearly 27,000 to less than 24,500. The tech-heavy NASDAQ slipped from 8,000 to less than 7,000.

The S&P 500 tumbled from 2,900 to 2,600.  Even oil prices are in the deepest slump we’ve seen in years. In fact, crude oil fell from $76.90 to $50.15. And while many are panicking, that’s the worst thing you can do. Instead, remain calm. 

The pullback in the oil market was severely overdone. 

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Granted, there was rampant expectations for a global oil supply glut. 

In fact, OPEC raised its production in September by 100,000 barrels a day to 32.78 million barrels of oil a day – a one-year high, according to the International Energy Agency (IEA).

Two, President Trump granted waivers to eight countries, allowing them to continue buying Iranian oil, despite U.S. sanctions. Three, the President is still advocating for lower oil prices.

"Hopefully, Saudi Arabia and OPEC will not be cutting oil production. Oil prices should be much lower based on supply!" Trump tweeted.

Four, U.S. production climbed by 400,000 barrels to a record 11.6 million barrels a day at the time, adding to oversupply concerns. Five, ongoing trade disputes between the U.S. and China dampened the outlook for global growth. 

Six, a stronger dollar has added pressure to oil prices, too.

In fact, the U.S. dollar ran as high as 97.43.

And seven, the International Energy Agency (IEA) just warned that global oil supply is on pace to significantly outpace supply, as Russia, Saudi Arabia, and the U.S. pump crude at record levels. However, the pullback in oil could be greatly overdone, in our opinion. 

In the process, it created obscenely oversold conditions in some of the top energy names. 

Technically, oil prices are back to lows we hadn’t seen since October 2017. Plus, it’s excessively oversold on relative strength (RSI), MACD and Williams’ %R.  The last time RSI was this oversold was early 2016 before oil prices ran from $28 to $75.

Keep an eye on oil prices here.  The pullback could be overdone.

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