Oil driven lower by European risks while waiting on inventories

Quote of the Day

There is time for everything.

Thomas A. Edison

Just when all you thought you had to worry about was Greece, since mid-afternoon yesterday concerns over Spain have sent all risk asset markets lower and erased the small gains from Monday. Market participants are showing no confidence that the EU is going to resolve its major sovereign debt and banking issues anytime soon nor are they convinced that the global economy is going to move into a growth spurt in the near future. Greece and now Spain remain the number one short-term bearish price drivers for all markets as talk of contagion is starting to spread around the media airwaves. If market players are able to get over the growing EU issues they then have to face the fact that the global economy is slowing in all corners of the world with hardly a bright spot. Simply put the markets are in a risk-off pattern that is starting to last a lot longer than some participants had originally thought.

The euro is now trading at a two year low with the short-term and medium-term trend still pointing lower. The next major support area for the euro is around the 1.19 level hit back in May of 2010.  As the euro falls, cash continues to flow into the US dollar with the ICE U.S. Dollar Index now trading at the highest level since August of 2010. The dollar remains the only place to hide at the moment as asset selling seems to be picking up momentum. A strong US dollar normally is bearish for commodities as well as most equity markets. The macro correlations are all in place and as the euro falls, US dollar rises while oil and the boarder commodity complex continues to tick lower.

As of this writing the spot WTI contract just breached the low made on May 23rd and if it remains below the $89.25/bbl level the next major technical support area is not until around $86/bbl or the price level the oil complex was trading at back in October of 2011.  The spot Brent contract is on a path to test its next major technical support level of about $102/bbl. There is no geopolitical premium in the price of oil and prices are starting to reflect the likelihood of a slowing of oil demand growth as the global economy continues to slow further.

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