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Bullish Fundamentals Can’t Prevent A Correction In Oil

There are basically two ways to analyze markets and make trading decisions, the fundamental and the technical. Logically speaking, fundamental factors and analysis always have the upper hand, particularly over a longer time period. In the case of crude oil, for example, if supply is outstripping demand the price is going down, no matter what your charts indicate. In the short term, though, as traders pay attention to technical factors they can be enormously powerful. Right now there is a battle going on between the fundamental and technical in the WTI market and, unusually, this looks like one that technical factors will win. Two weeks ago here I predicted higher oil and we did climb from around $51 to $54, but the likely outcome of this battle has caused me to expect another drop from here.

Fundamentals as they stand right now, however, suggest that oil is going up. At the end of November it came as a surprise to many people, me included, that despite differences so sharp that actual wars were being fought, the member countries of OPEC managed to come to an agreement to cut production in a meaningful way. What was even more surprising in some ways was that they managed to secure agreement from several large non-OPEC producers, most notably Russia, to do the same.

Now you can argue that at some point in the future there is a good chance that the agreement will break down, or that U.S. shale producers will simply up production to compensate. The fact is though that…




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