Quick post. A couple of charts here from our Global Cross Asset Market Monitor (weekly markets monitor that goes to clients). Key point: WTI crude oil prices are breaking down.
On the technicals, we’ve got a double top here and a downside break of the 200-day moving average, which leaves the logical support level down around 40-50. So there could be as much as another 20% to the downside as this move unfolds.
I covered the downside risks to crude oil in a recent edition of the Weekly Macro Themes report where I highlighted the mix of futures positioning, US dollar strength, negative seasonality, and supply growth as headwinds – as well as the bearish action in energy stocks – with our earnings sentiment tracker flagging warning signals.
Crude Oil 2011-2018
BONUS CHART: the bonus chart is crude oil implied volatility (think of this as the VIX for oil). While the oil price is breaking down, crude oil volatility is breaking out – this is very much consistent with the move in the oil price and is the kind of thing you see at the start of a major move (a spike from relatively low levels). At some point this spike in crude oil volatility may become a contrarian buying signal, but not yet.
Crude Oil Volatility 2011-2018
The price action in crude oil is really important, not just for oil traders or those who allocate to commodities, but because the oil price has an impact on a few different assets e.g. S&P 500, US HY credit, breakevens, and Treasuries. Indeed, if oil falls far enough and fast enough it could be a catalyst to further risk-off price action in US asset markets.