As predicted before, oil has declined substantially in the past month towards low $40s at the moment. The obvious question is whether
we have seen the bottom of oil? The short answer is that I don’t believe so. Fundamentally
oil is fighting with a big headwind: abundant supplies much more outweigh paled
demands. I don’t see this will end any time soon! The technical indicators also
point towards a longer term weakness for the months ahead. I think there is a
good chance oil will go below $40 and the worst case scenario it may go down to
$20s before its final bottom. In other words, we may not see oil really touch
its bottom until a time when there is kind of end of world outcry with a lot of
oil companies out of business due to bankruptcy.
Having said that, nothing goes in a straight
line, either up or down. Currently the herd mood is very depressing for oil and
I have seen a lot of talks that oil will go down further from here. Considering
oil is drastically oversold with depressing sentiment at the moment, a rebound
is much likely than an immediate big leg down. But any meaningful bounce
should be short lived. Don’t be fooled by the dead cat bounce!
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