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Will the Sharp Sell-Off in Europe and China Impact Oil Prices?

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US crude oil

On September 28–October 5, US crude oil November futures rose 1.5% and closed at $74.34 per barrel on October 5—$2.1 below its multiyear closing high of $76.41 per barrel on October 3.

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Sharp sell-off in Europe and China

On October 8, the Shanghai Shenzhen CSI 300 Index fell 4.3%. The impact was felt in the European market. The STOXX Europe 600 Index fell 0.8% at ~6:39 AM EST. Around the same time, the US dollar gained 0.4%. A rise in the US dollar could be a negative development for oil’s demand. Last week, the US dollar gained 0.5%.

Rising Treasury yields in the United States might be behind the fall in global equities. At ~6:58 AM EST, US crude oil November futures lost ~$1 from the last closing level.

Mike Pompeo visits China

Remarks during US Secretary of State Mike Pompeo’s visit to China suggest that disagreements in the two countries’ bilateral relationship might not be resolved easily, which could be a concern for oil prices.

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Important price points this week

US crude oil prices’ 20-day moving average of $71.66 is the immediate support. The closing level of $76.85 on the upside would be important for US crude oil prices until October 12.

Any changes in US crude oil prices could be important for US equity indexes like the S&P 500 (SPY) and the Dow Jones Industrial Average (DIA).

Gains in oil prices are positive for oil-weighted stocks. Denbury Resources (DNR), Pioneer Natural Resources (PXD), and Callon Petroleum (CPE), the strongest among the oil-weighted stocks, rose 4.2%, 5.3%, and 5.6%, respectively, last week.

Natural gas

On September 28–October 5, natural gas November futures rose 4.5% and settled at $3.14 per million British thermal units on October 5. The inventories are below their five-year average, which raised concerns about tighter supply during the upcoming winter season. Natural gas closed as high as $3.23 per million British thermal units on October 3, 2018—the highest closing level for active natural gas futures in 2018.

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