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U.S. Equities Crash, WTI Crude Oil Shows Weakness

Posted Tuesday, April 24, 2018 by
Shain Vernier • 2 min read

The markets have taken a sudden midday turn to the bear. The DJIA is crashing, down over 450 points and the S&P 500 twenty-five. Commodities have followed suit, with WTI crude oil falling $0.50 per barrel and gold paring a strong early-session rally.

A quick scan of the news headlines shows no premier reasons behind the plunge. Regardless of the fundamentals, a bulk of sell orders are hitting the markets and order flow is definitively bearish.

The breakout south has doomed a June Emini DOW futures trade recommendation from earlier. Price steamrolled through entry, rallied back to breakeven, and then plunged to hit the stop. All in all, an ugly (not to mention costly) trade to be involved with.

WTI Crude Oil

If you are trading WTI crude oil, then it is always a good idea to respect the weekly inventory cycle. It kicks off later this afternoon with the API stocks report and concludes tomorrow morning with the EIA inventories number. Lately, weak reports have been the rule. We will see if this batch outperforms meager expectations.

 

WTI Oil
June WTI Crude Oil Futures (CL), Daily Chart

The key element driving this market as of late has been the fresh riff between U.S. President Trump and OPEC. OPEC, as well as Russia, have stuck to production cuts in order increase the value of their crude oil stocks.

While the tactic is nothing new, Trump took exception last week and aired his grievances with OPEC out on Twitter. Since that time, WTI crude has entered a consolidation phase around $68.50.

Bottom Line

International crude oil supplies have gained a tremendous amount of value over the first quarter of 2018. North Sea Brent crude is up big and the launch of the “petroyuan” futures contract in China has been a resounding success.

However, a key element of global oil that is currently being ignored is U.S. production capacity. The recent bump in WTI crude pricing has stimulated output from the Permian Basin in Texas. In addition, fracking operations are being quickly brought back online in the Bakken shale oil fields of North/South Dakota and Eastern Montana. Given an energy-friendly sitting U.S. President, we could see some major changes to the oil industry in the United States.

The potential for an oil supply glut to hit global markets by the Fall is very real. Even though OPEC is committed to production cuts until the end of 2018, the move may backfire.

As of now, WTI crude oil futures contracts are still “inverted.” This means that July WTI crude is worth less than June WTI crude. Institutional money is not stupid — they fully expect U.S. production to keep the topside of the crude oil market in check for the remainder of 2018.

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About the author

Shain Vernier is our US Analyst
Shain Vernier has spent over 7 years in the market as a professional futures, options and forex trader. He holds a B.Sc. in Business Finance from the University of Montana. Shain's career includes stretches with several proprietary trading firms in addition to actively managing his own accounts. Before joining FX Leaders, he worked as a market analyst and financial writer.
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