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The Mini-Bear Market For Crude

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Markets have hit a rough patch – and oil is on the negative end of just about every indicator that appeared in the last week. Let’s go through them all and perhaps try to find where the light at the end of the tunnel might appear.

First to consider are the equity markets at large. No one can ignore the pressure that particularly EM and European markets have been under in recent weeks, and in the last weeks that pressure was transferred to the US markets through a small rise in interest rates from the Federal Reserve. Since then, equity markets have acted more bearishly, and this has created a general ‘risk off’ trade that has affected commodities as well. As we noted last week, indications of a hardening of the US/China trade war hasn’t helped matters either.

But on to energy specifically – here are the three biggest trends have negatively impacted oil.

1 – The withdrawal of hedge fund money from futures. We noted the historically high ratio of longs to shorts in futures in this column two weeks ago, and mentioned the likelihood of a sell-off in oil based solely on those positions being liquidated – below the ratio from September 25th:

(Click to enlarge)

And the contrasting chart on October 10th:

(Click to enlarge)

All indications are this withdrawal of money from oil positions will continue to pressure markets for a while yet, but on the positive side, sets up for a strong rally when positions inevitably are re-initiated…




EXXON Mobil -0.35
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