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Oil Prices Could Be Setting to Drop This Year

Investors beware: oil prices could be tumbling in 2018, and there could be major losses ahead.

Certainly, the call for oil prices dropping sounds bold, but this is not based on gut feeling. There are several reasons why oil could drop in value.

First and foremost, look at the chart below. Technical analysis is foretelling a bearish outlook for oil prices.

Pay close attention to the blue line drawn on the chart. The blue line represents the 200-month moving average. This moving average is deemed as a very long-term trend indicator. If the price is trading above that moving average, it means the long-term trend is pointing upward. If the price is trading below that level, it means that the long-term trend is pointing downward.

Chart courtesy of Stockcharts.com

You see, oil prices dropped below their 200-month moving average in early 2015. Then they tried to bounce back, but failed. When this happened, we saw a massive move to the downside that took oil to below $30.00

We now see the oil price trading very close to this moving average again. And, over the last few days, they have been struggling to move above this moving average. This is a bearish sign, telling us that oil prices could plunge.

Oil Market’s Supply and Demand Disparity

Beyond the technical analysis, look at the basic economics of the oil market: supply and demand.

We currently see the supply side gaining a lot of strength. One country that oil investors need to pay attention to is the United States. This shouldn’t be news to regular readers of Lombardi Letter.

Consider this: just recently, the U.S. Department of Energy said that the U.S. could be a net exporter of oil and gas by 2022. This is four years earlier than was previously forecasted. Why? Because there’s a production boom in the country. (Source: “US will be a net energy exporter by 2022, four years sooner than expected, Energy Department says,” CNBC, February 7, 2018.)