Oil Price Plunges Over 3% on Monday, Recovers Losses but Bears Still in Control
After a sharp drop on Monday, oil prices managed to recover most of their losses by the end of the day. However, as the price approached $74, sellers regained control, causing a 2% decline on Tuesday to below $72.50.
The short-term technical outlook for oil is bearish, with the price falling below the 200-day moving average at the end of last month. Attempts to break above this level failed, leading to a stronger resistance and a sell-off at the beginning of August.
Currently trading around $72.50, WTI crude oil is near June’s low levels, potentially establishing solid support. However, further decline is seen as the main scenario due to deteriorating macroeconomic conditions and recent market releases.
Commercial inventories have decreased in the past five weeks but remain close to last year’s levels. Strategic reserves have increased by over 8% year-on-year, with a potential acceleration in replenishment following price declines.
From a technical analysis perspective, oil is under pressure after breaking below the 200-week moving average. Similar instances in 2008, 2014, and 2020 resulted in significant declines before market stabilization.
Interestingly, previous technical signals preceded spikes in oil prices, similar to what was seen on Monday. However, historical trends show that oil price declines were either followed by quiet stock markets or were a delayed response to falling stock values.
In conclusion, the current state of oil prices indicates bearish sentiment and the potential for further declines. Understanding these market dynamics can help investors make informed decisions about their finances and investments.