Oil Prices Fall Through Important Support, Whats Next?

We had mentioned that it was an important event when the oil prices crashed through the $50 mark a few weeks back. This was immediately after the OPEC meeting when they decided not to cut the production by more than what they had already been doing since the start of the year.This was a sign to the markets that they were willing to support the oil prices only to an extent and that they would be leaving the rest of the control to the incoming production and inventory data. We have since seen the oil prices drop by over 20% and over the past few days, it had been trading near the lows of its range of the past 1 year. We had expected a bounce from here but that has not happened.

Oil Stares at An Abyss

This is despite the fact that there has been some jawboning from the OPEC members of late and the inventory data has been slightly hawkish as well. Neither of this has helped the oil prices and we saw the prices break through the $43 region and has broken through the range lows and continues to look weak. The next strong support comes in at the $40 region but with the increase in production from Libya and Nigeria and with the inventory being full to the brim, there is oversupply and this isnt going to disappear in a day. So, we could possibly be looking much lower in the lows 30s and we could also be testing the all time lows in the medium term if this build up continues. Also, there isnt much that even the OPEC can do as long as the production from the other non-members keeps increasing.

Gold prices have bounced back over the last 24 hours, something which we had mentioned in our forecast yesterday. The prices have managed to find some support in the lows 1240s region and have since bounced back above 1250 where it trades as of this writing. It remains to be seen on how long the bounce is going to last and if the dollar weakness continues for the short term, then we could see the gold prices recover all the way to 1260 in the short term. Gold prices are very quick to react to any changes in the dollar strength and that is why it is important to be on the guard.

Silver prices have also recovered over the past 24 hours and they are trading comfortably over the $16.5 mark as of this writing, and like gold, they are likely to continue to be strong as long as the dollar continues its weakness.