Crude Oil's Weakest Calendar Period Approaching
This seasonal trend could mean trouble for oil
Crude Oil (USO) has rallied recently, for a sharp snap back after hitting a six-year low last week week. The rally has buoyed energy stocks (XLE).
However, one trader says a seasonal trend in energy is indicating that the bottom isn't quite in for oil and energy yet.
Erin Gibbs, chief equity investment officer at S&P Capital IQ, says that historically, bottoms in energy occur around January, which has happened eight out of the past 10 years. That annual dip could set oil prices up to go higher, she said.
"Early next year we could really see a nice pop," Gibbs said on CNBC's "Trading Nation."
However, Bill Baruch of iiTrader said seasonal trends won't apply to oil in its current environment.
"Some of that seasonality can be in play, but prices are so low at the moment, I think technicals and open interest, that's really going to be a driver," he said.
Baruch said crude oil's recent rally was sparked by prices breaking above a technical level of $40.50, which led traders scrambling to cover their short positions and drove the price higher.
Other factors in oil's rise, Baruch said, are a drop in oil production estimates, positive economic data and a slightly weaker dollar. The U.S. Energy Information Administration reported a decrease in U.S. crude oil refinery inputs last week.
The U.S. dollar fell more than 3 percent last week amid a broad global market selloff. However, the currency is still up 6 percent year to date.
"It hasn't been much of a factor coming off the lows, but it's still been relatively weaker than where it's been," Baruch said.
According to Steven Schork, the "exaggerated" move in crude oil Thursday comes down to a short squeeze and an oversold market. With seasonal demand coming to a close and a continued supply glut, Schork said there were no fundamental reasons driving the rally.
"There were no fundamental headlines to justify a 10 percent rise in oil," Schork said. "The bears got themselves into a big squeeze."
Courtesy of cnbc.com