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Oil - Largest decline since May

Yesterday the price of Oil saw its largest decline in price within a single day since May. The price originally started to decline within the Asian session, and the price momentum significantly increased during the European Session and the trend continued throughout most of the US session.

The decline in price of Crude Oil witnessed yesterday measured 9.97% and continues to decline this morning after a slight retracement. Today’s Crude Oil decline measures 0.98% and brings the price of the asset down to a significant support level witnessed on the 25th of April and 11th of May. The support level is at $97.02 which is also the lowest price we have seen in over 2 months.

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Traders will be monitoring the price action over the rest of the day and evaluating the chances of the price declining below the support level or if a correction will be attempted.

The demand for the asset is being influenced by multiple factors but over the past 24 hours and throughout the day, traders are likely to be mainly monitoring the Fed Meeting Minutes. Traders will be eager to hear what the Fed’s main decision-makers have said in the latest meeting with regard to interest rates.

Additionally, traders will be specifically eager to see if there are any concrete indications as to whether the Federal Reserve will be looking to increase interest rates by 0.75% or by 0.50%. Most economists have indicated that if the Fed speeds up the level of interest rate hikes, the economy will be at a greater risk of experiencing a recession.

The issue with recessions is that it creates a significantly lower level of economic activity. This includes less production, manufacturing, transport and tourism. The lower activity lowers the demand for energy products including Oil. Generally speaking, the fear of recession has significantly pressured the price of Oil over the past 3 weeks.

In addition to this, there had also been fear related to the level of supply. OPEC members have recently advised they will increase the level of oil supply, but both UK and US officials have advised the increase is not sufficient. According to the Prime Minister, more oil is needed to stabilize fuel prices, which continue to break records and pressure inflation. However, it should be noted that pressure from both the UK and the US has not yet yielded any positive response from OPEC members.

Also, it was feared that strikes in Norway's Oil and Gas industry would further lower supply which is already lagging behind demand. However, it has been confirmed that the Norwegian government has intervened and strikes will end eminently.

However, even though there are many factors pressuring the price of oil, there are still of course certain elements which buyers are hoping will be able to push the price again upwards within the next month. Yesterday, Chinese Vice Premier Mr He and US Treasury Secretary Mrs Yellen held online negotiations to discuss economic policy and tariffs on goods shipped from China to the US. The White House did not formally confirm what the aim was, but observers believe it could be about lowering the price of materials from China. This is a clear attempt to lower inflation.

Currently, the price movement is moving sideways for both Crude and Brent Oil which can be expected after such a large decline yesterday. Traders may be waiting for clarity and further price drivers which may arise from this afternoon’s Meeting Minutes.

IMPORTANT NOTICE: Any news, opinions, research, analyses, prices or other information contained in this article are provided as general market commentary and do not constitute investment advice. The market commentary has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and therefore, it is not subject to any prohibition on dealing ahead of dissemination. Past performance is not an indication of possible future performance. Any action you take upon the information in this article is strictly at your own risk, and we will not be liable for any losses and damages in connection with the use of this article.
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