The Trend

The Greatest Investment Advice We Ever Received

It was only a matter of time.

In May 2017, oil prices began to collapse, costing investors millions.

For months prior, funds, traders, investors piled back into Black Gold on hopes for $60 oil on the heels of OPEC and non-OPEC, and Middle East escalation.

But it didn’t last.  Then again, many of us never expected it to. 

Wild bouts of optimism and hopes for a rebalancing of supply and demand would eventually give way to reality.  Not only did buyers ignore the fundamental picture, they avoided the technical setups, too. 

We can clearly see that $54 oil historically served as heavy resistance since the end of 2016.  Yet that was ignored.

Fundamentally, oil bulls had no argument either.

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In early 2017, OPEC had just reported that that global oil inventories increased at a rate of 430,000 barrels a day in the latest quarter.  That meant we were awash in oil.  The group saw supply running well ahead of demand, too.  

Plus, the U.S. Energy Department reported that crude stockpiles recorded an unexpected build to reach a new all-time high.  At the same time, gasoline and distillate product inventories fell by smaller than expected amounts.

Then we had news that supplies at the Cushing, Oklahoma oil storage hub – the largest crude oil storage hub in the U.S. -- jumped.  In fact, for the week ending April 7, 2017, the Energy Information Administration (EIA) reported that inventories rose by 0.3 million barrels to 69.4 million – its highest point ever. 

Plus, the International Energy Agency (IEA) just noted that it expected production to continue growing with the main impetus from the U.S., where output reached nine million barrels a day in March from 8.6 million in September 2016. 

At the same time, the IEA pointed to data that showed weaker than expected growth in a number of countries, including Russia, India, and several Middle Eastern countries, Korea and the U.S, where demand has been stalling.

Yet buyers continued to buy on a lack of fundamental reasoning and ignorance of technical resistance.  Shortly after, oil began to sell off.  Hedge funds began reducing bets on oil by a much as 20%, according to the U.S. Commodity Futures Trading Commission.

All as concerns built that OPEC has failed to ease the supply surplus, as U.S. shale producers increased output.  Not helping, the Libyan oil fields – which produce nearly 400,000 barrels a day – had just returned to production in May 2017.

It’s painfully apparent why it’s never best to blindly follow the herd into anything. 

The best thing to do with any – and all trades – is to properly research the fundamentals and technical signs prior to taking a position.

Just ask bullish oil traders.