Oil prices tumbled after an 8-day rally on Tuesday. This was the longest rally of oil in the past 5 years, which helped in creating hope for oil prices for oil bulls. Many traders closed their positions in oil after the gains which led to a fall in prices. Here are three reasons why oil is selling off.
US Market Holiday
Oil’s 8-day rally could have gone longer if the US market holiday had not arrived. July 4 marks Independence Day for the US. Because of this, many traders found it convenient to book their profits and start selling oil off. The beginning of the new quarter could bring new gains for the oil sector as the bearish sentiment is waning off in the market. Most analysts suggest that the ‘shaky hands’ in the markets have booked their profits by now and the bullish sentiment remains strong.
Despite OPEC’s efforts to cut oil production, there is still more oil than necessary. Libya and Nigeria are exempt from the OPEC production cut agreement. Libya alone is pumping around 1 million barrels per day of crude oil, which easily squishes the 1.8 million barrels per day cuts by the OPEC. US Shale oil production has taken a hit in June. Though there is a slight drop in US shale drilling, the number of rigs is still double the number in 2016. That is a 100 percent year on year gain, despite falling drilling numbers. Production fell by 24,000 barrels per day in April, as confirmed by the US Energy Information Association.
Market Correction was Expected
Oil had not registered a bigger rally in half a decade which made the correction obvious. The highest day gains in the past 5 days are still not stable. Oil prices met resistance at $50. Brent is trading slightly above $49.50, which makes the $50 resistance point even stronger. WTI marked a price of $47.50 per barrel in Europe.
OPEC production is still raking higher, especially because of the exempt countries. Exports from the oil cartel have been rising. Some estimates suggest that exports had gone up to 450,000 barrels per day, owing to massive production from Libya. The US dollar has also maintained a strong position against Euro and other currencies, which also had a small impact on oil prices. In this case, a prime factor in the latest oil dump.
As US markets remain closed on Tuesday, the oil rally had little chance of expansion. New trends could developer later in the month as a new quarter brings new hope to the markets.