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Jim Hyerczyk

Jim Hyerczyk

Fundamental and technical analyst with 30 years experience.

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Volatility Is Back In Oil, What Does It Mean?

Offshore Oil Rig

August Crude Oil futures plunged this week and are in a position to post a nearly 6% loss for the week as investors reacted to a volatile U.S. Dollar, driven by fears of a Britain exit from the European Union. The biggest fear is that a vote to leave the EU will plunge the Euro Zone into a recession, leading to a drop in demand for crude oil.

Besides the fear of a UK exit from the EU, other factors contributed to this week’s rapid decline including a rise in the U.S. rig count and a lower-than-expected drawdown in U.S. crude inventories in spite of peak summer driving demand in the United States.

The lingering production disruptions in Nigeria seemed to take a backseat this week perhaps under the assumption that other countries will make up the shortfall, or the problem would be resolved. Traders also had a muted reaction to the International Energy Agency’s proclamation that the crude oil market is essentially balanced at this time.

 

(Click to enlarge)

Technically, the main trend is up according to the weekly swing chart. However, the current price action suggests a shift in momentum and investor sentiment is taking place. In plain talk, the market is simply pulling back after a nine-week rally.

The short-term range is $38.14 to $52.28. This makes its retracement zone at $45.21 to $43.54 the primary downside target next week. Since the main trend is up, buyers are likely to step in on a test of this zone in an…

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