Crude Bears Are On The Offensive!

| January 13, 2014 | 0 Comments

WTI CrudeNo doubt about it, crude investors are starting off 2014 in a decidedly bad mood.

On the first trading day of the year, West Texas Intermediate (WTI) crude opened at $98.50 a barrel.   Fast-forward to today and you’ll find the commodity is barely hanging onto $92.00… a swift 6.5% drop.

Take a look…

West Texas Intermediate

As you can see, bears have been in complete control of this market ever since the start of the year.

What’s causing the downturn?

First of all, investors are realizing a sizeable quantity of Libyan crude is ready to come back on the global market.

As you may be aware, political unrest in the North African country took over 1 million barrels a day off the market in early 2011.  Since then, Libya has struggled with internal conflicts, keeping crude output well below the 1.6 million barrels a day the country is capable of producing.

The most recent conflict started in October 2013 at the Sharara field.  Protesters shut in the facility, taking over 350,000 barrels a day out of production.

But over the past few days, protesters have agreed to end their blockade at Sharara.  According to a report released yesterday, output at the field is back up to 300,000 barrels a day.  That has total Libyan output nearing 600,000 barrels a day, and rising quickly.

Does this mean crude has even further to fall?

Without question, bears have the advantage from a fundamental perspective right now.  Increasing North African production, along with the steady rise in US output, has the potential to bring WTI into the mid-$80 a barrel range in coming weeks.

However, I wouldn’t be surprised to see a short-term bounce before that happens… 

As you can see from the blue line in the chart above, the $93 a barrel area marks the late November low.  Bulls will likely make an attempt to send prices back up to the mid-$90 range at this important area of technical support.

But after that, all bets are off for the bulls…

Barring another blow-up in the Middle East, oil will very likely succumb to additional downward pressure in the weeks to come.  If you’d like to capitalize on further downside in the price of WTI, I suggest you take a look at the US Short Oil Fund (DNO).  If the price of crude falls, DNO rises.

Stay tuned to Commodity Trading Research for continued insight on the energy markets!

Until Next Time,

Justin Bennett

 

 

 

 

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Category: Crude Oil, Energy

About the Author ()

Justin Bennett is the editor of Commodity ETF Alert, an investment advisory focused on profiting from the ebb and flow of important commodities via ETFs. The commodity veteran and options specialist is also a regular contributor to the Dynamic Wealth Report. Every week, Justin shares his thoughts with our readers on a variety of commodity-related topics. Justin is also a frequent contributor to Commodity Trading Research’s free daily e-letter. And he’s the editor of another highly successful and popular investment advisory, the Options Profit Pipeline.