Economic weakness out of Europe coupled with strong job data out of the U.S. has the dollar soaring against the Euro. As a result of a strong dollar, the commodities markets are selling off aggressively as investors take risk off the table including the global equity markets. In addition, weakness out of Europe, China’s biggest export partner, is dragging on China’s economic growth further dampening the outlook for commodities and specifically for oil demand.
What does this mean for oil prices?
Fundamentally, crude stocks are just 2% over than the 5-year average while gasoline stocks are 1% below the 5-year average for this time of year. Days of supply for crude oil currently sits at 22.7, which is 4% below the 5-year average. twitter down . In short, the supply picture doesn’t paint a bearish scenario that is currently being priced in for West Texas Intermediate (WTI) crude oil prices trading at $85 a barrel. web search history
Globally, however, is a completely different story. Libyan oil production has increased significantly over the summer. server ip . According to a recent article published by the EIA (U.S. Energy Information Administration), Libyan oil production has increased to 900,000 barrels per day from 200,000 barrels a day. Couple this with the U.S.’s soaring production domestically, which is reflected in the sharp drop off of imports, global oil supplies are piling up. This has led to significant downward pressure for Brent crude oil prices, the global benchmark for oil prices and is now putting significant pressure on WTI prices in the U.S. windows server In short, we have China’s economy slowing to levels not seen since 2008 as European economies continue to struggle in addition to a strong dollar, which negatively impacts commodities prices, and swelling global oil supplies collectively creating major headwinds going into the end of the year and, at the very least, will increase volatility in the energy markets not seen since the mortgage crisis in the fall of 2008.
Technically, West Texas Intermediate (WTI) crude has broken down out of a long-term range dating back to 2008. The official breakdown occurred when WTI broke below the $91 level. The next major support level comes in at the $78 level in which oil prices found support in October 2011 and again in July 2012. A breach of the $78 level would represent a major failure and generate increased concerns for further price weakness. The next major level of support below $78 comes in at $70, a price level that we have not seen since 2010. With oil prices 22% off this year’s high, we are officially in bear market territory and until oil prices can recoup the $91 level and break above $95, traders have to respect the downtrend and should expect further weakness over the near-term.