Oil dropped from four-year highs and into bear market territory in just six weeks. The sell-off looks overdone, according to 14-day relative strength index. What's behind the crude oil price drop?
November 14, GKFX – The US oil prices, which traded at a four-year high of $76.88 six weeks ago, is now looking oversold below $56.00. As of writing, WTI is changing hands at $55.64 per barrel, having clocked a 12-month low of $54.79 yesterday.
The 27.6 percent slide from the four-year highs is looking overdone, as the 14-day relative strength index (RSI) has dipped below 30.00 for the first time since June 2017. Notably, the RSI fell to 14.00 yesterday, the lowest level in over a decade.
As a result, a recovery rally could be in the offing, although the bearish pressure would weaken only if prices manage to close above the descending (bearish) 10-day simple moving average (SMA).
What's Behind Crude Oil Price Drop?
Investors worried about a supply shortage six weeks ago, are now pricing in a situation where supply could outstrip demand. This is because China and other developing economies are facing a threat of economic slowdown due to a sharp depreciation of their respective currencies and Trump's trade war. As a result, the demand side could weaken in the days ahead.
On the other hand, the supply side is looking strong with the world's top three oil producers are pumping at or near all-time highs. Notably, US output topped 11 million barrels per day in the last few months.
Further, Trump's decision to allow eight countries including India to import crude from Iran may have alleviated the bullish pressure around oil.
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