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Why this critical commodity will keep getting cheaper

Why this critical commodity will keep getting cheaper

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Why this critical commodity will keep getting cheaper

Why this critical commodity will keep getting cheaper
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Oil may have gained a little bit on Wednesday, but that doesn’t necessarily mean that crude’s long downtrend is over.

The price of West Texas Intermediate crude oil for September delivery settled at $96.07 per barrel on Wednesday, a day after bouncing from its seven-month low of $94.26. 

(Read: Oil zooms higher, pulls off multi-month lows after US inventories)

However, Erin Gibbs, equity chief investment officer at S&P Capital IQ, believes the price of oil is headed lower still.

For Gibbs, the key is that the world is using less oil than usual while supplies are at record highs. Demand has fallen to its lowest levels in two years, with a relatively cool summer in the U.S. and a slowdown in Chinese imports likely to gain.

“We don’t see that changing any time soon,” Gibbs said. “Seasonally, we expect oil to drop as we head into fall. So we set our target at $92, and I still see that as a potential for oil going down further.”

(Read: Pickens: Brent crude will be above $100 forever)

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The technicals agree with Gibbs, said Richard Ross, global technical strategist at Auerbach Grayson.

Oil prices have traded sideways for much of 2014, staying within a range between $98 and $107 per barrel from February until the end of July. It broke down into what Ross said is a bearish flag formation at the start of August. And he said downside momentum should continue.

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“I’m looking at that $92 level that coincides with the January low,” said Ross, agreeing with Gibbs’ target. “That’s where we’re headed short-term.”

But the recent drop in oil prices is important for another reason, according to Ross, a “Talking Numbers” contributor. Oil is now trading below its 200-week moving average.

“This is a really important indicator,” Ross explained. “In each of the past three years, we have broken below that 200-week for just one week and then rallied sharply. We’re now below it for the first time in months, and if we don’t get a bounce here, we could go even further to the downside.”

To see the full discussion on oil, with Gibbs on the fundamentals and Ross on the technicals, watch the above video.

 

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