This oil market has been so bearish for so many months now that it looks like there is no bottom in sight. Each time it rallies, selling comes in to send prices lower. The only positive thing about the action in crude oil this past week is that the forlorn commodity did not make a new low, and that is not saying much at all.
Oil has been ugly
To say that the action in crude oil has been ugly is an understatement. Since the middle of June, the price is down by almost 58%. The trajectory of the slide in oil prices is quite amazing, and in many ways, a carbon copy of the move we saw in 2008, which sent prices to $32.48 per barrel. However, in 2008, prices dropped from a much higher level, $147 per barrel, and the circumstances were different. The fall in 2008 was the result of a global economic meltdown, while this time the slide is coming from a glut in supplies and dominant producers who continue to sell in order to maintain and even gain market share.
The weekly NYMEX active month crude oil chart illustrates that while the downtrend continues, an extremely oversold condition exists on momentum indicators and relative strength measures. Additionally, open interest, the number of open long and short positions in the futures market, is starting to rise. This could indicate an increase in speculative activity at today's lower prices. Weekly historical volatility has spiked higher to just over 36, but it has leveled out since the beginning of December right after OPEC decided not to cut production. While crude continues to try the downside, recently we have begun to see signs that a bottom may be forming.
OPEC starts to whisper - death of a king
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