I reckon the correction in oil here could run for quite a bit after having overseen eight straight weeks of gains.
At the high this week, oil peaked at $95.79 on the back of Russia-Ukraine tensions but as the headlines in the past few sessions show promising signs of hope, we are seeing oil prices drop quite a fair bit on the day.
Price is now down by over 2% to $89.75 and there isn't much support for oil until we get to the 8-9 February lows @ $88.44-53. Beyond that, the 23.6 retracement level @ $87.92 will be the next key level to watch.
If anything else, I would say that a deep correction here has the potential to run towards the 38.2 retracement level @ $83.06 or even the 100-day moving average (red line). That would create some enticing levels for dip buyers to scale back in for the long-term.
I'm still an oil bull in the big picture but I've laid out my case quite clearly at the start of the week:
"I know there might be some of those still long on oil like I am at the moment so I'll share a bit on how I might end up playing this out. If tensions do escalate, I'll stick with longs but at any clear sign that we are not headed to military confrontation, I might consider taking out the entire position as I fear the "dip" this time around is going to be a big one.
"Eight consecutive weeks of gains for oil is a massive stretch and if there is selling from the whole Russia-Ukraine situation, I think the selling can hit rather hard. I'm tempted to maybe keep invested via small lots and scale out maybe the remainder 80% of the position but reflecting on it, if the dip is going to be a rather sharp one, why not just play the tea leaves and technicals and scale back in on longs again after."
I did go with taking out 70% of my position on 14 February and will look to scale into long positions by assessing the correction move. But as Russia-Ukraine tensions are slowly normalising, there's no hurry just yet to step back in.
