Posted on December 12, 2008 - by Brendan Lee

Oil Trading Strategy: Any Rally Is A Sell

Crude oil rose on speculation that Russia may coordinate a production cut with OPEC next week to end the five-month slump in prices.

Crude oil futures for January delivery rose as much as $2.65, or 6.3 percent, to $44.72 a barrel in electronic trading on the New York Mercantile Exchange. It was at $44.10 a barrel at 12:57 a.m. London time.

I do not think production cut by OPEC will create a big rally in oil price. Why? Let us analyse why oil price has gone up to $145 last year: it is huge number of speculators. With this current economic situation, most speculators have fleed. So unless the speculators are back, we are not likely to see any sustainable rally in oil price.

Fundamental shows that oil demand has fallen.

a) Yesterday US reported that inventory for refinery product surged significantly, indicating consumption is deteriorating seriously amid high unemployment and poor economy.

b) Apart from the US, China has also recorded fall in oil demand. In November, oil imports in China dropped 1.8% YoY to 13.36M metric tons, the lowest in a year and the first decline since July.

Technically on the chart, oil is in a steep downtrend (see below for oil chart). Hence in my view, any rally for oil is a selling opportunity. Read more…

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