- WTI crude fell more than 4% on Thursday afternoon.
- Low liquidity in paper markets, easing geopolitical tensions and China’s ongoing struggle with COVID-19 weighed on crude prices.
- Rounding out the list of downward pressures is the rising dollar, with the dollar index DXY up 0.75%
Oil prices plummeted on Thursday on a series of bearish market forces, led by thin liquidity and easing geopolitical tensions between Russia and the West when it became clear that the missile striking Poland earlier in the week did not come from Russia. Paper markets are a major market force, which appear to be dumping with low volume and heightened margin requirements. There is a distinct reduction in open interest in the November oil contract—which is close to expiry—that is causing increased market volatility.
This is despite the healthy demand for physical crude oil.
This thin paper liquidity combined forces with easing geopolitical tensions after it was reported that the missile likely came from Ukraine, not Russia. It was originally thought that the missile likely came from Russia, which had sent oil prices higher on the news. But the spike was temporary, as has been the case as of late. Further weighing on prices were concerns that crude oil demand could fall on renewed fears that China’s struggle to get its Covid cases under control within its zero-Covid policy could have a deleterious—and chronic—effect on demand in the world’s largest crude oil importer. China reported 23,276 new covid cases on Wednesday, its National Health Commission said on Thursday, compared to 20,199 a day earlier. In addition to easing geopolitical tensions and China’s never ending COVID saga, JP Morgan’s forecast this week that the United States will enter a recession next year thanks to the Fed’s continued rate hikes, dampening the outlook for oil demand. Rounding out the list of downward pressures is the rising dollar, with the dollar index DXY up 0.75%. The bearish news has been more than enough to offset the low inventories in the United States, which saw a more than 5 million barrel draw in U.S. commercial crude oil inventories, along with a more than 4 million barrel draw in U.S. SPR inventories. NN: The tale of 2 markets. Their is the paper market we trade and the deliverable market. Their are wide price disparities. Mega Fund Commodity (manipulates.. some of their names begin with a S) traders are driving paper markets lower. We have seen this many times and the secret is to use their manipulations against them. And that my friend goes against human nature. Trading is not a natural event. Most peoples guts, experiences and instincts will not help them. I implore you to not make the basic mistake. Your enemy the funds do not have endless money. But they want you to believe they do. In fact with the days of zero interest rates over and FED tightening the good old days are gone.They cannot hold these prices down indefinitely. Its really a different equation. In a word RUSSIA! Embargoes and the war means we have a world wide energy crises.. Wind farms and harvesting solar won’t cut it. That is a proven fact! AND under investment in fossil fuel projects means their are no replacement well coming on stream. Oil fields get old and become depleted. Reality is despite the COVID China hysteria world energy production will drop. And energy demand will stay pretty much the same in the coming global recession… Production will fall far faster then demand. My next story is about China opening up not shutting down. Its a great example of how this COVID shut down will cut China energy demand is BOGUS!