Oil Tumbles as Low Trading Volumes Make for an "Investor Desert"
Comment of the Day

May 02 2023

Commentary by Eoin Treacy

Oil Tumbles as Low Trading Volumes Make for an "Investor Desert"

This article from Bloomberg may be of interest to subscribers. Here is a section:

“The market is an investor desert,” said Scott Shelton, an energy specialist at ICAP. “The fundamental information that generates predictable price action doesn’t exist.”

Adding to the bearish sentiment, vacancies at US employers fell to an almost two-year low in March, a fresh sign of a softening labor market. Activity in China’s export-tilted manufacturing sector missed estimates in April, a possible sign of a recession among customers in the US and Europe. And Iranian Oil Minister Javad Owji said the country has increased output to more than 3 million barrels a day, providing additional supplies to the market.

“It’s going to take some evidence in the physical market on the tightening we see in our balances before we see any more positive or committed trading activity,” Emily Ashford, an energy analyst at Standard Chartered Bank, said by phone. 

Eoin Treacy's view

OPEC+ have been proactive in attempting to curtail supply to meet declining demand. There are big outstanding questions about how sustainable that policy is against a background of competing priorities inside the cartel and economic weakness among the biggest customers. Keeping supply and demand in balance is only going to become more difficult.
Brent Crude dropped down through the 1000-day MA today and the succession of lower rally highs is still intact.

The financial and supply discipline of the oil majors has made them a darling of the investment community. Doling out rewards to investors has helped to sustain the sector’s performance over the last couple of years. As oil prices decline, the stock market sector is looking tired.

The Energy SPDR posted a massive reaction against the prevailing trend almost a year ago. Even though oil prices have declined significantly since then the prices is still in the region of the peak. That represents a lengthy period of right-hand extension. The succession of higher reaction lows needs to hold if the benefit of the doubt is to be given to the upside. However, the trend has developing type-2 top formation completion characteristics. 

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