Oil wiped out almost all of the gains stemming from OPEC+’s surprise output cut as signs of global economic slowdown compound a bearish technical correction.
(Bloomberg) — Oil wiped out almost all of the gains stemming from OPEC+’s surprise output cut as signs of global economic slowdown compound a bearish technical correction.
Global gasoline markets are slowing at a time when they should be ramping up or even peaking, while diesel demand, an important indicator of industrial activity, is lagging in both the US and Asia. Meanwhile, the most recent US economic report signaled the economy has stalled in recent weeks, casting a cloud over risk assets and energy demand prospects.
Accelerating the price drop, traders say, is a technical correction known as gap fill. A sudden spike in prices — such as the one that occurred after OPEC and its allies announced an unexpected production cut — creates a breach in charts where numbers have moved sharply with little trading in between. This gap often prompts a corrective move to fill the large break in prices.
“Large technical chart gaps like we’re seeing in the futures keep most traders very nervous,” said Dennis Kissler, senior vice president of trading at BOK Financial Securities. “After a gap like that occurs, more times than not, the market will migrate downwards.”
Despite this week’s pullback, crude is still up from a 15-month low reached in mid-March following turmoil in the banking sector. A surprise announcement by OPEC+ on production cuts and curbed Iraqi flows underpin much of the gains, with expectations of a rebound in Chinese demand also supportive.
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