Crude Concerns

One of the most important markets in the current environment is Oil.

At a time like this it generally reflects the markets conviction, or lack of, in economies to reflate. A rising Oil price typically influences inflation expectations positively while a declining Oil price knocks inflation expectations.

Take a look at Oil’s recent behaviour – it turned just before the Nasdaq at the start of this month. It peaked on 31 August while the Nasdaq peaked on 2 September. The theme of ‘reflation’ took a hit. As we approach the end of the month Oil is slipping again.

Further losses seem likely to create a nasty wobble in equities again and a short term bounce in the USD.

As has already been reported, Opec has decided not to declare its position and keep options open. Furthermore, the Saudi Energy Minister, Prince Abdulaziz bin Salman, predicted the market would be “jumpy” and that he would leave speculators “ouching like hell”. This is unlikely to change before the conclusion of the US presidential election. Why would they commit to anything now before knowing who is going to occupy the White House? 

Interestingly enough, the Oil price also saw a deep correction just before the last presidential election when it fell $10 in October 2016 and then based 4 sessions after the election (actually Oil tends to get shaky in the 4th quarter of many election years). Anything similar this time could see Brent at $36/barrel which is exactly where supports are found on the chart below. That is still 10% below current levels…. something that could easily have notable impacts on other financial markets over the next month.

Brent Crude Future – Daily chart (end 2015 – current day)

Technical commentary: The rise in Oil met the 200 day moving average target that was in place since May 2020. It has recently failed at the converged 55 and 200 day moving averages around $43 and started to slip again this week.

Immediately support is seen at $39.30 and below there supports are seen at $36.29-$37

 

SKA