Oil Prices Whipsawed by Technical Trading Amid Thin Summer Markets

• By Staff Editor
• Jul 23 2024

Algorithmic trading strategies and summer doldrums have whipsawed oil prices recently, overshadowing fundamentals in the near-term. As investors try to navigate the volatility, it's important to look through the technical noise while still respecting the risks.


Here's a quick overview of the recent slide and what it means going forward:

• Oil fell for 4th straight session, longest streak since June

• Driven by algorithmic/momentum trading strategies
• Commodity funds dumped bullish positions as prices breached moving averages
• Low summer liquidity amplified technical selling flows

• Factors behind the slide:

• Algo-driven selling triggered by breaking technical support levels
• Thin summer trading conditions exacerbating price swings
• Overbought signals on indicators like 9-day RSI preceding pullback

• Implications for investors:

• Increased short-term volatility risk from technical trading strategies
• Potential for fundamentals to be overshadowed by sentiment shifts
• Attractive entry points for patient investors if selloff is overdone
• Underscores need for disciplined risk management
• But fundamentals like OPEC+ cuts, rate outlook still supportive long-term

• Despite technical rout, bullish fundamentals remain:

• U.S. crude inventories at lowest levels since February
• OPEC+ supply cuts underpinning prices
• Expectations for Fed rate cuts boosting demand outlook

While algorithms have controlled near-term trading, the longer-term supply/demand picture still appears supportive of higher prices. Investors should look to take advantage of the volatility while managing risk accordingly in this environment.

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