Do the fundamentals matter for crude oil?
When you look at the crude oil markets Monday and compare them with the picture from just a few weeks ago, you will realize that fundamentals have taken a back seat to technicals. Sure, there has been a slight uptick in demand, geopolitical tensions have risen and the dollar has come off of its recent highs.
But does this justify a $10 move to the upside? I think not. The market is very well supplied, and while demand is stronger, it is still nowhere near where it was just a few years ago.
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So with that, let's take a look at the technical picture.
Once crude oil broke through the $98 level, it was off to the races—and that was a technical move. Throw in the fact that crude is trading somewhat as an investment tool, and voila!, $10 higher.
With all this being said, I do think that we are now a little overdone to the upside. There is good resistance between $106.50 and $107.50, and the first support comes in at $104.60 to $104.00. Under that, you are looking at support at $103.00 to $102.00. If oil breaks below there, we will see $98 again.
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I am going to trade the range for now, which means selling at $107 and looking to buy at $104. The oil range trade worked when we were $10 lower, and I think we are dealing with a similar situation at higher price levels.
I am a true believer in playing a range until that range no longer works—no matter what the fundamentals may say.