OIL has dropped 20% – time to buy?

In the last year or so, I was contemplating an idea of buying oil. Why was I sitting on my hands, rather than acting on it?

Oil went up to $100 at first (from below $70 in August of 2007), than bounced back twice giving me a chance to get in at about $88. I didn’t feel comfortable – to me the price was still near its all time high.

I ended up watching crude oil going all way up to $147, before it suddenly collapsed to $118 or so. Unfortunately, I can’t say that I see any big support level at this price range – my usual guide for getting in. Buying OIL – iPath S&P GSCI Crude Oil Total Rtrn Indx at $70.55 – is rather an intuitive gamble (another choice was DBO – PowerShares DB Oil Fund.)

On the technical side, I see a big drop and I am looking for OIL to bounce back to at least $130+ range (create a “shoulder”). On the fundamental side, I see some reasons that might help this technical move:

- the possibility of aggressive sanctions against Iran over its refusal to suspend uranium enrichment program;

- another round of disagreements between US and Russia, as well as any new abrasive changes in Russia’s energy policy;

- the beginning of hurricane season and possible strike of weather in the Gulf of Mexico:

I am sure that oil traders took into current price consideration the following info:

and the last, but not least,

- continuing problems in the housing and financial areas and Fed’s stubborn interest rate position can fuel inflation and weaken US dollar, affecting two forces contributing to the price of oil.

OIL – iPath S&P GSCI Crude Oil Total Return (NYSE)

DBO – PowerShares DB Oil Fund (AMEX)