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Oil Futures: Have Traders Initiated Bottom Fishing?


Jun. 11 2019, Updated 7:52 a.m. ET

S&P 500 Index paused oil’s downside

On June 10, US crude oil prices fell 1.4% and settled at $53.26 per barrel. Since June 3, US crude oil active futures haven’t changed. On June 3–10, the S&P 500 Index (SPY) rose 5.2%. Easing trade war concerns have supported the equity market. The rise in SPY could have paused the downside in oil prices. Oil is a growth-driven asset.

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Bottom fishing in oil

On June 5, US crude oil active futures closed 21.9% below the highest closing level since October 30. US crude oil futures were in the “bear market.” However, oil prices quickly escaped from the bear market. Since June 5, US crude oil’s implied volatility has fallen 14.3%. The decline in oil’s implied volatility indicates that traders expect less sharp movement in oil prices than on June 5. Lower implied volatility might support oil prices. The market expectation for an extended production cut in the rest of 2019 might lift oil prices.

However, other factors like a rise in US crude oil production, the higher inventories spread, and the IEA trimming the oil demand growth forecast might keep a lid on oil’s upside.

Key technicals

On June 10, US crude oil prices were 7.7%, 12.4%, 8.4%, and 10.4% below their 20-day, 50-day, 100-day, and 200-day moving averages, respectively. Prices below the key moving averages indicate weakness in oil prices. This week, the EIA inventory data might not be able to lift oil prices.


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