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Oil Is Close to Entering the Bear Market

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S&P 500 Index makes oil’s fall worse

On June 3, US crude oil prices fell 0.5% and settled at $53.25 per barrel. Since May 24, US crude oil active futures have fallen 9.2%.

On May 24–June 3, the S&P 500 Index (SPY) fell 2.9%. More trade war concerns have dragged the equity market. The fall in the equity market is making oil’s fall sharper. Oil is a growth-driven asset.

Other factors like a rise in US crude oil production, the higher inventories spread, and the IEA trimming the oil demand growth forecast have also contributed to oil’s decline. The inventories spread is the difference between oil inventories and their five-year average. Based on the EIA’s Monthly Crude Oil Production report released on May 31, the US crude oil production in March rose 2.1% on a month-over-month basis after declining for two consecutive months.

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Near the bear market

On June 3, US crude oil active futures closed 19.6% below the highest closing level since October 30. A fall of another 21 cents will mark the start of US crude oil’s “bear market.” On May 31, US crude oil’s implied volatility rose 25.8%—the highest level since January 7. US crude oil prices fell ~6%. Usually, a rise in the implied volatility could make oil’s fall sharper. A rise in the implied volatility indicates that traders expect large swings in the underlying asset prices.

Key technicals

On June 3, US crude oil prices were 12.2%, 14%, 8.8%, and 11.5% 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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