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Peter Kimani

Oil Prices bottom/ bounce

Question

I noticed that oil prices just bounced off the $28 level, does this mean oil has bottomed and is setting up for a rally?

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Hi Peter, thanks for your very timely question. Firstly, I'd like to explain that global crude oil prices crashed earlier today after Saudi Arabia cut the official export prices for its crude oil by $6-$8. The country also announced that it would ramp up oil production in April once the current production quotas agreed to by OPEC and its allies expire at the end of March. The West Texas Intermediate crude oil index crashed to a low of $27.26 but has since recovered to trade at $34, which I believe  is the bounce you had referenced.

Well, I believe that oil prices still have a long way to go before we can say that a rally is underway given that the increased production is likely to leave prices depressed for a long time. However, you could look to play short-term rallies and declines as I believe that oil is likely to trade in a range for the foreseeable future is the price war between Saudi Arabia and Russia persists. Therefore, I would look to trade oil once the trading range if fully formed where I'd buy at the lows and sell at the highs of the range.

The above is just my opinion and you should always do your own due diligence, or seek advice from a licensed professional who is familiar with your financial situation before making any investment decisions.

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