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Commodities

Brent sharply down

03-Apr-2018

Mayhem in equity markets continued over the bank holiday weekend as the S&P 500 broke through its 200-day average for the first time since 2016.

Tech stocks were again particularly badly affected as Trump criticised Amazon for abusing the US postal service for its own gain and Elon Musk tested the sense of humour of his shareholders to the absolute limit by announcing that Tesla was bankrupt as an April fool joke! He tweeted “Despite intense efforts to raise money, including a last- ditch mass sale of Easter Eggs, we are sad to report that Tesla has gone completely and totally bankrupt. So bankrupt, you can't believe it.”

This sell-off in equities has been too much for oil to ignore, bringing Brent sharply down from the highs over 71 $/b it set last week. The apparent severity of the fall has been exacerbated by the contract roll at the end of the March from May to the lower priced June contract. Although the front contract went down to 67.50 $/b in thin trading yesterday, it is not yet in any serious technical danger, though that point is not very far away. The 50-day average is now at 66.80 $/b and the 100-day only a little lower at just under 66 $/b. Meanwhile the so far unbroken trend-line support that has underpinned the rally up from the lows of June 2017 is now at 65 $/b.

The most recent data on investor positions in oil futures show an increase in bullish bets. This is not surprising as the data is a snapshot as of last Tuesday when Brent traded over 71 $/b. In an environment where equity markets are extremely jittery, particularly as China has responded to Trump’s tariffs with its own tariffs on US imports ranging from pork bellies to dried fruit, the existence of large speculative long position on oil could be a threat. Brent would need to regain 70 $/b soon to avoid the danger of testing technical support again.

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