Here’s why oil prices need to plunge: Strategist

Oil is hitting its highest levels in nearly six months, but some worry that fundamental factors could drag the commodity right back down.

"Supply and demand are way out of balance, and if you look at stockpiling, we are floating in oil right now," Gina Sanchez of Chantico Global said Thursday on CNBC's "Trading Nation."

Even with summer bringing a potential increase in demand, Sanchez maintains that the market dynamics demand lower prices.

"We're about to go into driving season in the United States. This is the big time for [oil demand]," she said. "You're getting more enthusiasm in the markets and that's been holding oil up, along with the concept of the price freeze. But when we get out of the driving season come August or September, you're still going to see that we're going to be floating in oil, and oil is going to be way too high."

A weakening dollar has also supported rising oil prices of late.

Some traders, meanwhile, believe that the worst is over for oil and energy stocks.

"[The XLE energy ETF is almost 40 percent up since January], which is more than double what the S&P has done since that time," Instinet senior equity trader Frank Cappelleri said Thursday on "Trading Nation." "So I think the short-term risks are really there, but at the same time, over the last year, both crude oil and the XLE have been putting in a bottoming process dating back to last August."

"This has allowed the XLE to form some bullish formations along the way and also push above the 20-month [downtrend] line, which could suggest that the trend is turning from negative to positive going forward," he added.

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Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

Follow Michael Santoli on Twitter @michaelsantoli

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