The West Texas Intermediate Crude Oil market fell rather hard on Tuesday as the US dollar shot much higher. Concerns about demand going forward are being expressed, an the fact that the very currency that the contract is priced in rises, it means less of that currency is needed to buy it. That being said, we have the OPEC meeting over the next couple of days, and that will have a major influence on where this goes next.
Looking at the size of the candlestick, it is relatively impressive selling to continue the massive selling that we had seen on Friday, as a lot of people have started to price in the idea of the coronavirus shutting down the world economy. I think that is well overdone, and really at this point in time it is likely that we continue to see a lot of volatility, but at this point people start to ask the question as to whether or not OPEC will continue to increase production. It is very unlikely at this point, and we may see another turnaround, so I think it will be interesting to see how this plays out. That being said though, the technical analysis does look very poor, so in the short term we could see further destruction, but more likely than not a lot of what happens next is going to be determined by the OPEC statement.
Between now and the statement coming out during Thursday, I anticipate that oil will continue to be very noisy between now and then but be advised that we could turn around as quickly as we fell after OPEC makes its decision. If OPEC does plan on increasing production going forward still, that could provide even more selling pressure. This is a market that now has to focus on that scenario, as during the trading session on Tuesday most of the downward pressure was probably applied by Jerome Powell speaking of inflation as no longer being “transitory.” This made rates rise, and fears of inflationary headwinds sparked a lot of asset sales. The next 24 hours are probably going to be noisy at best, so although it certainly looks rather negative, this is a market that has to get through this week to determine its longer-term trend.
