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Is Another Oil Crash Coming?

Mar. 05, 2018 7:16 AM ETOIL-OLD, USO5 Comments
Kevin George profile picture
Kevin George


  • Oil pulls back as risks-off sentiment builds.
  • Futures markets still heavily long.
  • Current trends are likely priced in.

Oil pulls back as risks-off sentiment builds

The bullish run in WTI crude oil has stalled in recent weeks and I'm worried about the risk/reward setup for continued gains. This could be a good opportunity to lighten oil stocks in your portfolio or initiate an oil hedge if stock fundamentals are still appealing.

After reaching my target of $60, from the $50 level, WTI crude oil mounted a strong rally to highs around $66. The rally above the target would've been partly driven by short capitulations and after a small pullback week, the price fell almost $7 which is a reminder of the potential for a strong move lower if the sentiment turns against bullish crude oil. The price still holds above the key $60 level at the time of writing, however another bearish move in the week has me concerned that oil could see an unwind in the weeks ahead. With the Head of OPEC meeting top shale oil executives, oil traders will be watching carefully for any comments of Houston on Monday.

Futures markets still heavily long

As I mentioned previously, COT positioning shows that future traders are now long crude oil in record numbers. This level of positioning looks dangerously one-sided and history shows that the majority are always wrong in their market assessment so I feel it may be a matter of when oil unwinds, rather than if. The long futures position in crude oil is now twice the positioning that was present before the late-2014 wipeout that caught complacent markets cold.

(Source: Daily FX, COT)

Another interesting development in the Commitment of Traders report is the fact that markets look heavily biased towards an anti-U.S. dollar stance. Are we maybe approaching a sharp dollar rally that catches markets by surprise? Market positioning shows that the euro especially, is in

This article was written by

Kevin George profile picture
Author of "The Stock Market is Easy - How to Avoid the Pitfalls of the Average Investor".I am an active trader in stocks, FX and commodities with over 15 years' market experience. I hold a master's degree in finance and have developed a strong skill base in technical analysis.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Comments (5)

Kevin George profile picture
Price Update 9th March: Price did close under my noted level and we saw follow throught to test $60 level.

Price has since rebounded but a 50c gain on the week highlights weakness, or at least traders' hesitation. We await the next driver of price.
We stand to see other short-lived corrections as a result of broader market selloffs, but even a sustained equities correction will help expose oil and potentially oil stocks as strong opportunities for alpha. You can only be short tactically, otherwise you are begging for pain.
Maybe in the next recession. Difficult to get an oil-crash when we no longer have Obama-growth and worldwide demand is increasing by 2.0 mb/d per annum.
Day late and a dollar short, short the companies. They will put perform the commodity itself and they have been decimated. Better shorts in this market
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