What moves teh market?
By: Ahura Chalki
Market analyst – IFC Markets
Oil is back under the trend line. The stock market is the leading risk for Oil bulls.
The decline started last week and increased differences between OPEC members when the UAE began to oppose OPEC’s production increase plan, which triggered market concerns about the organization’s possible split and an oil price war. On the other hand, the increasing severity of the pandemic in many countries worldwide, even the countries with the high vaccinated ratio, has also suppressed market sentiment.
This price decrease is happening amid ongoing concerns about global economic growth, which caused the decline in some market-main indices. At the same time, the latest published financial data also was not so charming.
“The ratio of long to short positions on crude futures reported by the Commodity Futures Trading Commission rose to 23 in the week through June 15. That’s the highest in three years and up from a ratio of six at the start of the year.” (Investing)
While EIA inventories have fallen for the sixth consecutive week, US gasoline consumption has recorded 421.8 million gallons, which is the highest average daily gasoline consumption in history.
Considering all these data and events, the Oil market will be drive by several factors. Firstly, based on Fed’s latest semi-annual Monetary Policy Report, the central bank is not planning to increase the rate or decrease the supports as long as the labor market needs help to get fully back to the pre-pandemic level, and it is positive for the Oil market.
On the flip side, profit-taking at the current high level, with increasing the new cases of Covid-19 cases, is the kind of hidden risk of the market. Also, the OVX, an indicator of the volatility of crude oil ETFs, has rebounded recently, currently recording 37.02. Judging from past data, if the index breaks through the 40-level, it is easier to trigger a sharp rise or plunge in oil prices. Finally, geopolitical risks such as political intervention by the United States may also cause short-term pressure on oil prices.
Oil generally moves in an uptrend; however, above $73, it has some difficulties. Above this level, technical indicators are beginning to show some weakness in its uptrend. RSI falls back under 55, and the OBV trend line tends to decline. 50 DMA at $69.30 is key support, and any number above this level supporting higher numbers. On the flip side, breaching under this level can open the doors for a more profound number.
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