On Tuesday oil fell for the third day, as a landslide in global equities caused losses among bonds, cryptocurrencies and commodities. However, the crude price remains positive for this year.
Although Wall Street stocks recorded their biggest intraday drop since 2011 on Monday and measures of volatility hit multi-year highs, oil has not been as disturbed as one would think.
Brent crude futures shed 66 cents on the day at $66.96 a barrel by 1155 GMT, holding onto this year’s 1 percent gain. U.S. West Texas Intermediate crude futures shed 55 cents to $63.60.
Since reaching a record high on January 26, the S&P 500 has lost 8 percent. Oil has lost 4.5 percent, while bitcoin has lost half of its value.
Something that may be keeping oil away from a bigger fall is the structure of the forward curve, where the futures contract is trading well above those for delivery further in the future.
“We know that speculative positions both in terms of contracts and in allocated dollars are at an all-time high. Thus a real pain-trade has not yet hit the oil market,” said Bjarne Schieldrop, head of commodity strategy. “Longs have not yet started to flock to the exit door. If that happens, it will make the buying opportunity even better for the oil consumers who buy oil on the forward curve.”
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Following a spike in U.S. bond yields generating fears of a potential increase in inflation and higher interest rates, the financial markets tanked on Monday.
Oil has been caught in the middle of two contradicting influences, the 1.8 million barrels per day (bpd) cut in supply by the Organization of the Petroleum Exporting Countries and Russia, and the increase in U.S. crude output surpassing 10 million bpd.
“It is, however, worth remembering that global oil demand is set to grow at a healthy rate this year, that OPEC and its 10 non-OPEC peers are impressively disciplined at keeping their quotas and that geopolitics also helps to balance the supply/demand equation,” said Tamas Varga, oil strategist.
Keep in mind that there is also a seasonal decline in demand, as many refineries shut for maintenance at the end of the winter season in the northern hemisphere.
“For these reasons, although the current sentiment has turned negative and lower prices are likely in the immediate future, the downside potential is limited, too.”