Don’t be surprised for a wonder rally for oil

Oil has experienced a brutal selloff in the past couple of weeks. About 25% plunge within a very short period of time is nothing charming for the oil bulls. But if you listened to what I was saying, this is not a surprise at all. Here is I said when oil was on its way up towards $50: The recent COT report did show that the speculators long positions have gone beyond 400,000 as the oil price is close to $50. I think there is not much left for oil to go up in the near term but rather there is a high risk that oil will tank soon. Be prepared for it if you are long oil now!. Some friends were asking me how low oil could go with the coming correction, I said at least low $40s, for which I was challenged by the feedback that they could not see any catalyst for that much a correction.  Well, now it looks like my prediction was too conservative as oil has breached $40. Has oil touched the bottom for this correction? It is possible but I doubt. Oil is not yet in a good place to find its bottom yet: slower economy in the US and increasing challenges for the world economy are met with overproduction of oil already at the moment, for which the situation will only become worse when more oil supplies will be coming from countries like Iran, Iraq, or Libya. I won’t be surprised to see oil goes down to low $30s in the next few months. Having said that, oil has been extremely oversold at the moment and don’t be surprised to see a violent one or two day wonder rally for oil. But any such rally will fade soon I think. Don’t bet for a quick sustainable rebound for oil yet!! The world economy is simply too fragile to embrace a much higher oil for now. If you are short oil, taking your profit for now is not a bad idea. If you want to bet for a rally, it will only be good for an extremely short-term trading. Otherwise, you will pretty soon kick yourself.