Oil prices are roughly 25 percent of their four-year high at the beginning of October, after massive sales, which began later in the month, which pulled oil directly into the bear market in November and completely destroyed this year's profits.
On Tuesday, prices continued to fall sharply when the WTI reached $ 53.34 at 15:55 EST and the Brent price dropped 6.65% a day to $ 62.35. Both benchmarks are now trading at several-month minimums due to high raw material stocks and unsatisfactory results of sanctions against Iran, which would lead to tighter supply.
The price drop, which began at the beginning of last week, saw oil prices the highest increase of one day in three years. Prices have recovered somewhat in the second half of last week, this time declining again spirally, as fears of excessive supply persist.
In spite of today's steep downward trend, some analysts believe that prices will be resumed next month, based on recent oil price trends. Others believe that oil prices will need a major catalyst that will shift from current levels. This major catalyst could be the OPEC / non-OPEC meeting in December 6-7, when the cartel and the allies could announce a new production cut that would halt falling prices, stabilize markets and eradicate fear of excessive oversupply.
If history recurs, oil prices and the S & P 500 will dip in the following month, according to the Jefferies investment bank.
"The heavy monthly downturn in oil prices did not notice market weakness, on the contrary, really," said Jefferies in a research report by CNBC.
Jefferies analyzed how oil prices and the S & P 500 index responded after a fall in oil prices, just like in the last few weeks, and after oil dropped below two thresholds for standard deviations. The investment bank has found that since 1990 – with the exception of abnormal market behavior during the global financial crisis – WTI Crude typically earns 5.5 percent over the next month, and rises by 7.3 percent over the next three months. Related Articles: Upcoming Endgame in Oil Markets
The S & P 500, on the other hand, grew by 2.3 percent a month and rose by 5.4 percent in three months after the same downturn, according to Jefferies.
In the week ending 13 November, hedge fund managers reduced their net long position, the difference between bulls and bears, to WTI Crude, the lowest since August 2017, and lowered Brent Crude's net long position to the lowest in a year, and according to stock market data and the US Commodity Commission futures (CFTC) compiled by Bloomberg.
The number of long positions in Brent Crude dropped to the lowest in almost three years a week until November 13, but long positions in WTI Crude slightly strengthened by less than 1 percent, while six weeks of weekly droplets in a long time. The number of short positions in the WTI jumped 12 percent. Still, the slight increase expected by WTI last week may be a sign that some fund managers may go on for a long time, according to some market strategists who spoke to Bloomberg.
"Maybe what we finally got were the merchants who looked at it and said," Okay, you're 20 percent, maybe I should start throwing some long time there, "" Bill O'Donnell, the main strategic market for Confluence Investment Management conference, Bloomberg said.
Historical trends suggest that oil prices may be reflected in the month after the fall. A month after this price fall, the official meeting of OPEC and the Allies is expected to discuss and eventually approve a new drop in oil production. With indications of a slowdown in economic growth and oil demand growth, the market is expected to report a significant reduction in production in early December, and could be bitterly disappointed if OPEC did not meet this expectation.
By Tsvetana Paraskova for Oilprice.com
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