Now that the price of oil has plummeted to under $31 per barrel as I write, it's worth taking a look at whether or not it's getting close to consider seriously investing in the commodity, or continue to wait on the sidelines; including whether to initiate a position or add to a position.
Most of the decision should be based on whether or not investors believe it's at least close to a bottom, or at minimum, a price range that reflects being near to a low.
Since I'm not a believer in timing the market, looking at a price range is the best way to analyze where the price of oil is at. The challenge is we're in uncharted territory. Not because we haven't seen significant price fluctuations in oil before, but because we have never seen it after the emergence of shale oil as a significant supplier.
For that reason we don't know how low the price of oil will go, but more importantly, how long it'll remain in the range it has been trading in recently. There are no signs anyone is willing to cut back on production levels outside of U.S. shale producers.
I'm looking for a sustainable price over $40 per barrel to be the trigger for some shale oil producers. Under these conditions and minus an unexpected geopolitical event, there is no catalyst I see that will cause oil to rebound to that level in 2016.
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