Even after the dramatic fall in oil, in the wake of OPEC not cutting production, oil is likely to go lower in the medium-term. Here are the nine key points that every investor must understand.
Take a look at the chart
Start by taking a look at the annotated chart of the United States Oil Fund ETF USO.
Please click here for the annotated chart of USO.
The bottoms are typically marked by heavy volume. Please note on the chart that the volume on this new low so far is only about 30% of the volume on the previous low. Further note that the previous low is about 12% below the current price and is likely to act as the first support.
Fair value of oil
Based on the quantitative screen of the ZYX Change Method, fair value of Brent crude is about $58. As of this writing, Brent is trading at $69.74. The fair value on this screen is determined primarily based on supply and demand.
Saudi Arabia n foreign-exchange reserves
Saudi Arabia is the big swing producer. Its foreign-exchange reserves stand at $278 billion. Its cost of oil production is under $10 per barrel. The point is that Saudi Arabia can easily withstand a price war lasting more than a year.
Russian geopolitics
Relations between Russia and the West are strained. One realistic way Russian President Vladimir Putin can hurt the United States is by negatively impacting the shale revolution…Read more at MarketWatch
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