“To talk without thinking is to shoot without aiming”
As I have been warning, the downside correction in oil prices, as well as the broader commodity complex, began with a bang on Tuesday resulting in oil prices falling about 2.5% with even larger losses in metals and agricultural commodities. The market sentiment quickly changed to profit-taking mode as a massive downside correction hit most all commodity markets (exception being Nat Gas which is still being supported by cold weather). I do not think the commodity rally is over yet as I believe we are just in the midst of a normal correction within a longer term uptrend. That said the decline in commodity prices has resulted in a cloud over equities as well as the Nat Gas market.
The selling in oil and several other commodities has continued overnight with oil prices down over 1% as of this writing. With so many investor/traders and analysts bullish and predicting oil had no place to go but over $100/bbl, it should be no surprise that money has moved to the sidelines as the market has been overbought and prices were way ahead of what the improving fundamentals are suggesting. The fact that the U.S. dollar traded in positive territory throughout yesterday's trading session and into this morning so far along with a languishing equity market did not help to support oil and other commodity prices over the last 24 hours. The oil markets are now clearly in the correction we predicted and will likely remain in corrective mode for at least a few more days (or longer if today's oil fundamentals snapshot is the least bit bearish). In addition, if the rest of the macroeconomic data due out this week disappoints the market in any way further, then moves to the downside can be expected in equities resulting in even less support for the commodity complex.
Global equity markets have also been languishing over the last 24 hours with the EMI Global Equity Index holding steady (so far) maintaining the year to date gain at 1.4%. However, most of the bourses have moved into negative territory since yesterday's U.S. close and values are likely to move lower as the U.S. markets open this morning. U.S. equity futures are also in negative territory pointing to a lower opening on Wall Street. With the U.S. dollar gaining ground and equities showing signs that they also may be setting up for a downside correction, there is little external support for oil or the boarder commodity complex in the very short term. For the next 24 hours, oil prices will likely be driven by the outcome of this morning's EIA report. Longer term oil and the broader commodity complex are likely to remain in a long term uptrend.