U.S. West Texas Intermediate crude oil plunged earlier in the week on worries that escalating trade tensions between the United States and China could hurt oil demand, and news that Libya would reopen its ports raised expectations of growing supply.
The price action was dramatic on the daily chart. It even changed the trend to down. However, while this week’s movement is easily spotted on the weekly chart, there has been no change in trend and it looks like a normal 50% correction in a bull market.
The markets were under pressure before the regular session opening on Wednesday in reaction to the release of a new list of tariffs on China by the United States. This raised the possibility that China would retaliate by slapping a tariff on imports of U.S. crude oil. This action would substantially weaken demand for U.S. WTI crude oil.
Prices were further pressured after U.S. Secretary of State Mike Pompeo said on Tuesday that Washington would consider requests from some countries to be exempt from sanctions due to go into effect in November to prevent Iran from exporting oil.
Washington had previously said countries must halt all imports of Iranian oil from November 4 or face U.S. financial restrictions, with no exemptions. So the Pompeo announcement came as a surprise for those holding long futures contracts.
The first two events set the table for the steep sell-off, which was triggered after Tripoli-based Libya National…