Tuesday June 6, 2017

I've Been Thinking:

The price of oil dropped 39 cents by the end of the day yesterday. Those watching the market are expecting the price to continue to fall.

This happened on the same day that OPEC decided to continue to drop output.

Conventional wisdom would say - when OPEC reduces output, the price of oil should shoot up.

So why has it dropped?

Two reasons.

First, there has been a surge of output from elsewhere in the world filling the gap that is created by OPEC. The US, for example, has increased production by over 10% over the last year. Second, instability in the Middle East is telling the market that OPEC members will not hold to the restrictions on output.

Both of these reasons telegraph a message to the market. This is how we predict markets.

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