After reaching a top at $98.24 on January 30, nearby crude oil futures weakened in what appeared to chart-watchers as the start of a short-term correction into a 50% retracement level at $91.82. Although the move would have been substantial, it wasn’t expected to be a trend-changing event. Instead, it was expected to be a buying opportunity for those who considered prices to be a bit too lofty at current levels.
Outside factors were contributing to the weakness. For one, the EUR/USD had topped at 1.3711 on February 1 and many thought that this was a sign that demand for higher-yielding assets was a little too strong for current economic conditions. The sell-off in the Euro gave some long crude oil traders a reason to pare their positions; however, the strength in the equity markets most likely prevented an even harder decline.
The Commitment of Traders report which shows the current open futures positions also showed a shift. According to the latest report on February 5, short commercial positions increased. This was a sign that prices had reached a level that was attractive to hedgers.
The combination of a weaker Euro and a growing short commercial position most likely triggered the start of the eight-day break from $98.24 to $94.97.
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On February 11, short-traders were caught by surprise when OPEC raised forecasts for the amount of crude oil it will need to supply this year because of stronger fuel demand in emerging…