Trading position (short-term; our opinion): Small (half of the regular size) short positions (with a stop-loss order at $61.13 and the initial downside target at $52) are justified from the risk/reward perspective.

On Tuesday, the price of black gold moved higher supported by an explosion on a crude pipeline in Libya (because of this event the country has lost around 90,000 bpd of crude oil). Thanks to these circumstances, light crude hit a fresh 2017 high, but is this event as bullish as it may seem at the first glance?

Crude Oil’s Technical Picture

Let’s look at the long-term chart of crude oil (charts courtesy of http://stockcharts.com).

The crude oil moved to new highs yesterday. That's a fact. However, it's also a fact that we saw exactly the same thing at the end of 2016. In the final days of the previous year, crude oil broke above the previous highs on relatively low volume. The volume that we saw yesterday wasn't as extremely low as the late-2016 one, but compared to the size of yesterday's move, it was indeed small. Consequently, the 2 cases appear analogous and we doubt that yesterday's rally is black gold's true move.

Moreover, let's keep in mind that crude oil topped also in the final days of 2015. There was no major top in the final days of 2014, but crude oil declined in the early part of 2015 anyway. Additionally, there was a top in the final days of 2013.

All in all, in 4 out of the past 4 years the price of crude oil fell in the first part of the year and the last part of the previous year was a great time to enter short positions - not to exit them. Consequently, since history tends to repeat itself, keeping the short positions intact seems to be justified at this time.

As always, we’ll keep you - our subscribers - informed should anything change.

Thank you.

Nadia Simmons
Forex & Oil Trading Strategist
Przemyslaw Radomski, CFA
Founder, Editor-in-chief, Gold & Silver Fund Manager

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