Global Equity Meltdown Springs Oil Leak
Today’s Spotlight Market
The historically significant sell-off in the equity markets over the past several sessions has put heavy selling pressure on Oil prices.? Front month futures fell below the $39 level for the first time since 2009 due to the shakiness of equity markets around the globe, most notably China.? There has been increasing talk of the commodities supercycle coming to an end.? In the 2000?s, there has been so much talk about geological scarcity of raw materials and peak Oil that prices had been inflated very an extended period of time.? Now that China and some emerging markets have seen a significant slowdown, traders have begun to rethink whether prices, in fact, were driven by true supply and demand economics or whether commodities were simply the benefit of circumstances.? Low interest rates, lack of trust in capital markets and booming emerging market economies all helped fuel the rise of commodities, most notably energies.? Traders were not the only ones that took notice of this, as energy companies had begun reinvesting in exploration and alternative means of extracting Oil and Natural Gas, which may have restored market balance.? The recent oversupply of Crude Oil could be viewed as the result of high prices driving reinvestment.
Fundamentals
The People?s Bank of China, until recently, seemed to have fairly good control of the country?s economic situation.? The bank had its difficulties stimulating economic growth, but that is a problem that plagues all central banks, as a whole. However, recent actions by the PBoC have been increasingly unpredictable and this seems to have shaken investors? faith in the bank?s ability to cope with trade imbalance and other economic issues.? This has fueled the sell-off in Shanghai, setting off a domino effect that has wreaked havoc on stocks around the globe.? China is the world?s largest user of energies and other raw materials.? A worse than expected slowdown could have a crippling effect on Crude Oil demand.? On the supply side, rig counts are up for the fifth consecutive week.? This is somewhat surprising given the current price climate, which could make many projects unprofitable.? Bijan Zanganeh, Iran?s oil minister, said that holding an emergency OPEC meeting may be effective in stabilizing the Oil prices.? At the same time, his country is considering pumping more in order to lose its market percentage.? Furthermore, it is unlikely that Saudi Arabia, which has taken a leadership role in the cartel, will agree to an emergency meeting.? Tomorrow?s EIA inventory figures could show a weekly build and another build in Cushing, OK due to the refinery issues.? It appears that the Whiting, Indiana BP refinery is close to coming back online, which may help alleviate some of the domestic Oil glut in the near future.
Technical Notes? -? View Today’s Chart
Turning to the continuation chart, we see the October Crude Oil futures contract continuing to grind lower after breaking several key technical levels.? The early price action is sharply higher this morning.? Given the sharp down candle yesterday, a strong up day has the potential to possibly set up a V reversal on the daily chart.? If the market is unable to build on the early strength, the next support area on the chart could be found near the $35 mark.? The RSI has been oversold, but relatively flat for some time, which could be viewed as possible divergence.
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