By now everybody knows Oil is down massively and all pundits in the media are trying to explain demand has suddenly vanished. One month ago, the same pundits were talking about supply being tight and the case for 100 USD per barrel Oil was outlined. Now, at 55 USD per barrel, the same media talk about how the fundamentals of Oil suddenly have changed and that Oil can go much lower.
Let’s face it, trading in oil is as speculative as trading in any other asset. The recent sell-off has been nasty and we have to go back to 2015 to find a similar move lower. Oil is extremely oversold at these levels and fear is very high.
Note that current levels in Oil around the 55 area have provided support, resistance, breakouts down as well as breakouts up over the past years. This is simply a huge level for Oil. We wouldn’t be surprised to see some “encouraging” tweets or comments here.
Oil volatility index, OIV, has spiked massively. The move yesterday was pure panic and sparked a huge rally in Oil volatility.
Whether the fundamental picture has changed or not we leave to pundits to decide (we are sceptical of the economy or the supply/demand changing that rapidly).
Interestingly enough, we note that extreme price action to the downside in Oil accompanied with a rather extreme spike in volatility has managed to mark local lows in Oil over past years.
Let’s see if this time is different or if the crowd once again just experienced a washout?
Source: charts by Bloomberg