How Are Oil Prices Reacting Now?
Yesterday I had a very interesting conversation with a good friend. He had been following the markets very closely and wanted to know what I thought about oil. With prices now actively trading above $100 per barrel, several market watchers including my friend thought prices were poised to fall in the short term. He cited three main drivers indicating oil is overbought: First the market is getting toppy. Second, seasonal weakness from the second quarter would reduce demand. And third, the recent OPEC meeting in Austria would move prices lower. Now to me, a short term fall in the oil markets would equate to a 10% or 12% correction. This means oil would need to fall to the high $80s or low $90s. Could this happen? Before I tell you my thoughts, here’s what he said. Oil is toppy. Toppy is a term used frequently to indicate a near term high in a market. Traditionally it refers to a breakdown of an up-trend. This can be found in a head and shoulders pattern or the appearance of a resistance
