The last year or so have been, to say the least, painful for long term oil investors but, as I have said before, for traders it has been an almost perfect market. The sustained downwards trend with consolidation and small rallies at or just below logical support levels has presented multiple opportunities for two way trading. We saw the pattern repeat again this week as WTI pushed lower, breaking through $35 and then bouncing off of the 2008 lows at around $32. That bounce has been sustained in early trading today (Friday), and that sets up the chance for another chance at a trade that has been profitable around other support levels recently.
(Click to enlarge)
The basic idea is to short oil in the $33s with a view to reversing that position and going long just below $30. This concept of selling something that you ultimately want to buy often seems strange to those without a trading background, but it is a common tactic in dealing rooms around the world.
The bounce off of the support was a kind of kneejerk reaction, but the fundamental factors that have pushed oil even lower haven’t changed. The Saudis are still using the price of oil as a weapon against their enemies in the region, ISIS and Iran. Production levels in the U.S. are still elevated. There are still concerns about global growth, particularly in China. All of this is true and in the current climate of fear bordering on panic in the oil market that means that any rally will be…