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Hot Sector – Where is the low of the downcycle for oil price?

Thu 27 Dec 2018

Oil surged on Wednesday trading, posting its strongest daily gain in more than two years in a partial rebound from steep losses that pushed crude benchmarks to lows not seen since 2017.

Both U.S. and Brent crude rose about 8 percent, their largest one-day increase since Nov. 30, 2016, when OPEC signed a landmark agreement to cut production.

However, it was unclear whether follow-through buying would push prices higher again in the new year.

An analyst says that the bounce on Wednesday amounted to a relief rally after Monday’s plunge, with the energy complex getting a boost from the surging equity market as the Dow Jones Industrial Average rose more than 1,000 points, posting its biggest-ever one-day point gain on the heels of the worst Christmas Eve on record.

U.S. West Texas Intermediate crude futures ended Wednesday’s session up $3.69, or 8.7 percent, at $46.22, rebounding from a 6.7 percent plunge on Monday.

Brent crude oil futures, the global benchmark, rose $4, or 7.9 percent, to $54.47. It earlier fell to $49.93, the lowest since July 2017, and posted a 6.2-percent slide in the previous session.

Crude oil has apparently been caught up in wider market weakness as the U.S. government shutdown, higher U.S. interest rates and the U.S.-China trade dispute unnerved investors and exacerbated worries over global growth.

Could the recent selling in oil prices has been “less fundamentally driven and more a function of the overall market meltdown as increased equity volatility and growing macro concerns have weighed on a number of asset classes”?

It was reported that oil funds have incurred heavy losses in oil markets this year, with the average commodity trading adviser fund, or CTA, down by 7.1 percent on the year through mid-December, according to data by a research firm.

Funds apparently took big bets on oil’s rally, only to see the commodity drop by more than 40 percent since the October highs.

Where could both the light crude and heavy Brent crude oil prices be heading to in early 2019?

Where should we be expecting a reversal in trend to come as commodities after all move in clear cycles albeit tending to overshoot on the upside and downside?

A reversal in oil price is likely to have a positive effect on oil and gas stocks, which have also been sold down badly in line with the market and oil price decline.

However, the declines bring opportunities to accumulate these stocks at some time near to their bottoms.

It’s likely that a reversal will come as soon as the critical levels on the commodity is crossed and it currently resides at two particular levels, one short term and the other long term.

Traders should be prepared to act once these levels are crossed together with other corroborative indictors such as momentum and cycles (see table below)

Hard Commodities Outlook (Wed 27 Dec 2018)

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