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US Crude Oil Is in a Bear Market: What's Next?

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US Crude Oil Is in a Bear Market: What's Next? PART 1 OF 5

US Crude Oil Has Entered a Bear Market: Will $43 Hold?

US crude oil

On June 20, 2017, US crude oil (USO) (OIIL) August futures fell 2.1% and settled at $43.51 per barrel. On the same day, US crude oil July futures settled at $43.23 per barrel, their lowest closing price in 2017.

US Crude Oil Has Entered a Bear Market: Will $43 Hold?

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On June 20, US crude oil active futures settled 20.6% below their 2017 high, which meant that they’d entered a bear market.

Will oil fall further?

On June 20, indications of rising oil supplies from Libya and Nigeria pushed oil prices lower. These two countries were exempted from OPEC’s (Organization of the Petroleum Exporting Countries) production cut deal.

Based on EIA (U.S. Energy Information Administration) data, on average, OPEC’s oil supply could remain 2% higher between June and December 2017 than it was between January and May 2017. For non-OPEC countries, the oil supply between these two periods could rise 2.1%.

The market could witness higher crude oil supply in the rest of 2017, a welcome event for oil bears. However, after crude oil’s fall, the $43 level is an important support for US crude oil active futures. If further bearishness overwhelm this level, $40 could be the next stop for oil.

Oil’s performance in context

Between June 13 and June 20, 2017, US crude oil August futures fell 6.8%, and the Energy Select Sector SPDR ETF (XLE) fell 3.5% during the same period.

In the trailing week, among European equity indexes, the CAC 40 Index (EWQ) rose 0.6%, and the FTSE 100 Index (EWU) fell 0.4%. During the same period, the S&P 500 Index (SPY) and the Vanguard S&P 400 Mid-Cap Index (IVOO) fell 0.1% and 1.4%, respectively.

Despite higher exposure to the energy sector compared to the S&P 400 Mid-Cap Index, the Dow Jones Industrial Average (DIA) rose 0.7% in the week ended June 20, 2017.

US crude oil moving averages

On June 20, US crude oil active futures were 9% and 13.7% below their 20-day and 100-day moving averages, respectively. More importantly, their 50-day moving average was 2% below their 200-day moving average. This important technical signal could accelerate the fall in oil prices.

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