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Oil Prices: Fundamental And Technical Analysis Conflict

Analysis of markets of any kind, stocks, bonds, currencies or commodities basically falls into one of two categories, fundamental and technical. In an ideal world both types of analysis support trading in a particular direction. When that is the case the short term moves that technical analysis usually indicates can be used to set up a longer-term position that allows you to take advantage of the fundamental picture. Sometimes, however, it is not that simple as each way of looking at things indicates a move in a different direction. That is where we are at right now in WTI, and that raises the question of which to believe. The answer is both.

In the oil market, fundamental analysis deals with what I usually refer to as “big picture” matters. These are the things that have a bearing on the most basic drivers of price: supply and demand. They include macro issues such as the prospects for world economic growth, and the domestic regulatory environment as well as more specific factors such as output levels and stockpiles both here and overseas. From that perspective, the dispute between Saudi Arabia and Qatar calling the OPEC agreement to restrict production into question, an oil friendly White House and Congress, a recent wobble in growth and a series of terrible inventory reports all point to further drops in WTI.

Technical analysis, on the other hand, is concerned with reading charts and predicting moves based on previous pricing patterns. As you would…

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