Crude oil and crude related ETFs are dropping again on Tuesday, while inverse crude ETFs are climbing, as broken key technical levels and fallout from Fed comments continue to push prices downward.
West Texas Intermediate crude oil, the United States benchmark, is having a tough day on Tuesday. Its black gold is down $2.45, or 4%, and has slipped below $60 per barrel, after falling short of reaching the key $70 level recently.
This is a recent downtrend for crude oil and crude ETFs, which tumbled more than 8% last Thursday after U.S. crude stockpiles crested over half a billion barrels and the International Energy Agency said global supplies are plentiful. Meanwhile, U.S. tensions with Russia also escalated based on comments from President Biden that Russian leader Vladimir Putin is “a killer.”
After oil futures in New York slipped 0.3% on Wednesday, closing out the longest stretch of declines in more than six months, WTI crude oil, the U.S. benchmark, dropped as much as $6.60 a barrel, or 10.24%, after a U.S. government report revealed that domestic oil supplies climbed for a month straight.
Investor sentiment was also dragged down by news from the IEA that oil markets are actually not on the verge of a new price super-cycle, as previously posited.
Temporary Setback or a Long-Term Trend?
The news rattled crude ETFs too, with the United States Oil Fund (USO) sinking 8.25% and the ProShares Ultra Bloomberg Crude Oil (UCO) plummeting 14.84%.
Now technical analysts are concerned that the significant breakdown Tuesday may have longer term implications for oil.
“The West Texas Intermediate Crude Oil market has broken down significantly during the trading session again on Tuesday, to reach towards the 50 day EMA. The 50 day EMA of course is an indicator that a lot of people pay close attention to. If we break down below the 50 day EMA, then it is likely that we continue to go much lower, perhaps reaching down towards the $52.50 level. With that being said, the market is likely to see a lot of noise and therefore I do not have any interest in trying to get long, at least not quite yet. However, I will not hesitate to sell if we break down below the previous week slow,” wrote analyst Christopher Lewis of fxempire.com.
Savvy investors willing to take on some additional risk by looking to play the downside in crude using ETFs can consider the ProShares UltraShort Bloomberg Crude Oil (SCO), which rallied over 5.45% on Tuesday.
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