A couple of weeks ago I opined in these very pages that WTI was essentially trading in a range created by sensitivity to its own price. The theory was that somewhere around the $51 level seemed to be pivotal, with production increasing above that point and decreasing below it. The natural tendency of markets to overshoot means that the range created extends several dollars either side of that point and the tendency of traders to place orders just inside a range means that it will narrow over time. That would give us a bottom somewhere around the $48-49 level. It is still really too early for a big old “I told you so”, but the price action in crude futures over the last couple of days definitely supports that theory.
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After a rapid climb, increased U.S. production and talk of problems with some OPEC members’ resolve to stick the current schedule of cuts, let alone actually expand them, caused a rapid selloff. As usual that brought out the exaggerators. One particular “analyst” from a major Wall Street firm was all over the media predicting that WTI was going to $20 a barrel on the move down. One assumes that he was in need of attention, because he was totally ignoring the pricing dynamic around $51 and the trading reaction to it.
What has actually happened over the last couple of days is that futures got below $49 and then this week’s inventory numbers showed a much larger than expected draw on…