After four consecutive days of weakness, $50 handle did not provide much support for oil prices. Today’s slide made a new 5-1/2 year low and is in advance of tomorrow’s US stockpile report, which currently is expecting an increase of at least 700,000 barrels last week.
Continued weakness is expected for oil because demand is likely to remain weak as European and Russian economies continue struggle. The last time OPEC cut production was back in 2009, when price bottomed out around the $33 handle. Ecuador and Venezuela are expected to become more vocal and request a cut from OPEC. The next meeting is scheduled for June but if oil breaks below the $40 handle, a surprise meeting and cut could occur over the next couple months.
The US oil 60-minute chart above displays the recent plunge that easily broke below the $50 level and made a key low at $47.89. Major support may reside around the $42.50 level.
If we do see a bounce above the $49 level, the downward sloping trending line displayed above may be defended by sellers.
The trade: Sell US Oil at $48.40 with a stop loss at $48.90 and a take profit at $46.40 The Risk/Reward Ratio is almost 1:4
Edward J. Moya
WorldWideMarkets Online Trading