Between technical factors and a new outbreak of nerves in the Korean peninsula, oil prices are continuing their recent decline this morning. Good chance to shake out the speculators. West Texas Intermediate crude is down another 1% in early trading, cracking back below the $81 level. Traders say the market is reacting to a combination of factors, including the fresh hostilities that emerged overnight between Pyongyang and Seoul, along with rumors that North Korean dictator Kim Jong-Il is dead or dying.
While less dramatic, the dollar is playing a role here too. The dollar index (DXY) has blown through resistance and is now trading back above 79 this morning, largely due to the euro's bailout concerns and a bit of a flight to safe havens bid in global markets. As the dollar appreciates, commodity prices, from oil on down, naturally feel the pressure. And oil in particular is not in bullish technical shape. The price action has already broken below the 50 and 200 day moving averages and is now in the process of testing the 100 day trend as well.
Plenty of guys have been hiding out in the oil market and this is a chance to shake them out. Speculative long positions came down a bit last week, according to the CFTC, but remain very elevated. Meanwhile, look to see USO and the rest of the oil patch decline.
Posted courtesy of Emerging Markets.Com