Crude oil prices are under strong pressure, and the WTI November futures was trading 1.21 dollars away from the important August low of $50.59 at the time of writing. The US ISM Non-Manufacturing PMI slipped to 52.6 from 56.4, and the 55 projected, causing crude oil prices to trade even lower.
The mover lower in crude oil prices comes about as global stock markets have been declining on the soft ISM manufacturing report reading earlier in the week, and today’s soft ISM Services PMI.
The ISM Mfg. PMI, published earlier this week, dropped to levels not seen in ten years and suggests that the US manufacturing sector is contracting. Similar reports but for Germany and UK show that those economies are probably in a mild recession. As the world economy is cooling faster than what most people anticipated, expectations for crude oil demand is being adjusted lower and so does crude oil prices follow.
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Crude oil traders are also probably trying to close out their long positions that they build on the large price spike a few weeks ago. In mid-September, Saudi Crude oil production was attacked causing crude oil prices to spike, the general theme following the attack was that it would probably take time to build up the production capacity. There was also fear of military escalation between Saudi Arabia, USA, and Iran that could send prices higher. However, crude oil production was restored faster than the market anticipated, and the US has so far been reluctant to move military against Iran. The bullish positions in crude oil prices appear therefore to be wrong-footed and traders try to close their positions causing crude oil prices to slide even more aggressively.
Crude oil prices are now trading just above the August low of $50.59, and a break to the low might send price to the next major support level, the January 2 low of $47.24. However, caution is warranted as the price has declined strongly from its high in September and the RSI-14 indicator will soon flash oversold levels. Crude oil prices tend also to generate false breakdowns; thus, the price might slip below the August low just to head higher and consolidate above the August low.