The West Texas Intermediate Crude Oil market has pulled back just a bit during the trading session on Thursday, to test the crucial $75 level. The market had previously seen 3 strong days, something that we hadn’t seen in a while. However, this is going to be a function of being oversold and now I think that reality is starting to set back in.
The longer-term trend will be reinforced by the 50-Day EMA which sits right around the $82 level, and he is dropping. The $80 level of course offers resistance, and the simple fact that global markets are starting to price in the idea of a slowdown should continue to weigh upon oil consumption and oil demand as well. With demand dropping the way it has, it’ll be interesting to see what OPEC does next, because it’s only a matter of time before they start to lose their sense of humor.
It is thought that OPEC will probably try to cut production soon, but if there’s no demand, there’s not a whole lot the cartel can do about it. Furthermore, it appears that some of the bigger players jumping online may drive up demand down the road, but there is a bit of a lag time from China reopening to oil being in huge demand. Beyond that, every time we hear a story about China reopening, something happens to kill some of the enthusiasm.
Liquidity is Going to Start Drying Up
- The US dollar has had a very strong day during the Thursday session, and that of course weighs on commodities as well.
- It just simply takes fewer US dollars to buy a barrel of oil than it did yesterday.
- It’s not until we break above the 50-Day EMA at the very least that I would consider this a market that I could start buying, because it has been so negative that it would take a significant shift in thought to make this a situation where you would be comfortable owning oil.
On top of everything else, we are heading toward the new year and that means liquidity is going to start to dry up. In that scenario, anything can happen but quite frankly often nothing dies. In other words, we may be content to just kind of hang around this area that we’ve been in for a while, with a negative tilt.
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