Global risk aversion triggered by political risk mounting in Italy hit crude oil prices hard. Following Friday massive selloff in crude as mixed message from OPEC seem to suggest production cuts might not last. The catalyst for the non-financial markets move was news that Russia and Saudi Arabia had suggested that output quotas might be flexible (however, other producers have voiced opposition). The failure for crude prices to hold the high ground is clearly a bearish indicator in the short run. The liquidation of massive short indicates that downside correction could be significant. Current pricing is more than just extended long trade, but fundamental concern of slowing global demand and higher product from non-OPEC members. Traders will be watching API inventories with expectations of 500k barrel outflow projected. In addition, monthly EIA report will provide details on supply trends. There is increasing evidence that swelling US output will undermine OPEC driven supply cut efforts. Given the current macro backdrop we continued to see downside in crude oil prices.
By Peter Rosenstreich
