Oil prices slumped yesterday with Brent (OIL) and WTI (OIL.WTI) dropping over 5%. Crude prices have steadily declined throughout the day with no specific news triggering the slump. However, there are factors to consider that may have played a role. Russian media hinted that Russia may decide to ease its diesel export ban in the coming days. On top of that, some banks came out with bearish oil remarks. For instance, JPMorgan noted that summer driving season in the North is coming to a close, which should lead to a drop in demand for fuels. Also, the bank noted that stockpile draws are now likely over with satellite images suggesting that global commercial stocks began to increase after a period of inventory draws.
A pullback on oil is beneficial for equities as higher energy prices were the main concern behind potential inflation reacceleration, which could force central banks to be more hawkish. Of course, weakish ADP print yesterday also provided support for equities because, unlike JOLTS report released on Tuesday, it showed that US labor market cooling is still in play and it has allowed for a recovery on the bond markets and pullback in yields.
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Create account Try a demo Download mobile app Download mobile appTaking a look at OIL chart at D1 interval, we can see that price slumped below the lower limit of the Overbalance structure yesterday, after which the downward move accelerated. Price continued to freefall and broke below 50-session moving average (green line) as well as $87 per barrel support zone. Declines were halted in the $86 area, at least for now. Keep in mind that a break below the Overbalance structure hints at a bearish trend reversal.
Source: xStation5
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