Oil extended its losses to land near a five month low, as a minor rally fizzled out. Traders who has no real commitment to any model, combined with mounting worries over excess supplies building, which all left the algorithmic traders in control of the price.
West Texas Intermediate edged downward, settling at around $69 per barrel, which brought its losses over the past six sessions to 11%, which was the longest run of daily losses going back to February. Brent crude, the global benchmark, hovered at around $74 per barrel, its lowest price since June.
Oil had rallied earlier in the session, following a short dip into overbought territory on its nine-day relative strength index, a technical sign which will often be followed by a rebound. However the rally quickly fizzled, as bearish trader sentiment drove many traders to the sidelines, which left the commodity in the control of the broader markets and the algorithmic traders. Brent was driven lower by trend-following commodity traders after it broke through $74.50, where many selling programs were positioned.
Rebecca Babin, a senior energy trader at CIBC Private Wealth, said, “The technical bounces we see are low conviction and may lack staying power until there is a positive catalyst that sparks a significant short-covering rally.”
Meanwhile, key spreads are trading in a bearish contango structure, indicating there are surpluses of some types of oil. In addition, traders are expecting high crude exports from the US and other non-OPEC producers, which will add still greater volumes of lighter barrels across the world. So far, that has counteracted the recent decision by the OPEC+ alliance to reduce production output into 2024.
There have also been wider ramifications to the slide of crude. A wider commodity gauge was dragged to its lowest point since 2021, as a key grade of crude sold by Russia once again fell below the Group of Seven price cap, the first time it has done so since July.
OPEC+ producers have been arguing that not only can they adhere to their latest production output cuts, but that they may choose to extend them even further. Earlier in the week, Saudi Arabia said that the cuts “absolutely” can be extended past March. Similar statements have been made since by Russia, Algeria, and Kuwait.
Traders are also looking to Friday’s jobs report, since some have speculated that that the central banks may have taken their rate cuts too far, and triggered too large of an economic slowdown.
