Oil prices are once again a hot topic as prices hover around $40 a barrel for the second consecutive day.It is difficult to be bullish on oil as prices are once again negative on the year and down almost 23% from the one-year high seen in early June. While I am expecting oil prices to move lower over the long-term; however, it looks like the market is finding some decent support at current levels.If the market does hold at these levels we could see a jump back to $45 a barrel. The next level to watch will be $48, which I would expect be an attractive level for investors to establish new short positions.
While we could see a modest bounce in the near-term, I still remain bearish and look for opportunities to sell rallies.The reality is that the fundamental picture points to weak growth. Despite low relatively low gasoline prices, the U.S. summer driving season has been relatively lackluster and the summer is almost over. After Labor Day we should start to expect a new build in crude oil inventories, which are still at massive levels.There was an interesting Bloomberg article Sunday that continues to demonstrate weak global demand. According to the news agency, Saudi Arabia, the world’s biggest oil exporter is seeing is domestic consumption fall to the slowest pace in six years.The nation’s demand for oil this year has declined by 22,000 barrels per day, the first decline since 2009. The kingdom is also trying to increase its exports as it cut its prices to Asia.When Saudi Arabia cuts prices to improve its market share, you know there is a bigger problem in the marketplace.As to how far prices can fall, investors should keep an eye on the $40 level. A break below that could lead to a test to $36 and eventually the multi-year lows hit in late-January.
