The recent fall in Oil prices from about US$107 to its low of US$45 or thereabout has led to a cacophony of claims that it is headed much lower. The estimates vary from US$20 to US$30. Nobody really knows which will be the lowest point. A quick look at the Chart patterns seem to indicate that the oil may be way too oversold to hit those lows in the in the next few weeks. On the contrary, it seems to be ripe for a sharp rally that could take it by 10 or possibly 20% or more higher. There is never any point in speculating about the exact price since most of the time we will be wrong.
The chart below (from www.stockcharts.com) is a Kagi chart from 2012. The problem with the chart is that there are too few data points. I would have been more comfortable if the data started with the 1980s or at least 1990s. But, the chart pattern is one of the most successful on a long-term basis (1-3 year perspective).
It seems to indicate that Oil may be way too oversold. This combined with data that the net short by Hedge funds for West Texas Intermediate Crude is at a record high may offer some reasons for the prices to go higher. Finacialisation of Commodities and near zero interest rates offer some great opportunities for large trading companies to speculate in a win-win manner. If they make profits they keep it, if they lose money then they can palm off the losses to the central banks.
