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Was there a speculative short selling on crude oil?

Crude oil keeps very volatile, from -17% to +15%. Was it a speculative short selling, or data-based price move?

A speculative short selling

Crude oil has been extremely volatile in the past couple of days. A previous week the commodity erased 7% and ended at the level of $71.33. But the low was $63.64 and the high/low range was -17.02%, which could be considered as a highly one-week decline. From the beginning of the year, the crude oil is down around 10%. 

Read more: Oil erases half of the week’s loss / will crude mark a red week? 

The biggest factor in the price decline is fear. Fear from recession and low demand for crude oil. Not very satisfying data from all over the world, mostly China as the biggest consumer of the commodity, causes the fear that recession will hit hard. Therefore, the crude declines. But last week was extreme. Was it a speculative short selling? 

Bid/Ask delta 

The bid/ask delta shows the difference between the volume of bids and asks in a specific time period. In the last week, especially on Wednesday with the biggest decline, the delta shows an enormously bigger ask volume (green columns) in comparison with the volume on the bid side (red columns). Moreover, the cumulative delta (numeration of each bid/ask delta) shows a rising delta while the price went under the $65 mark. 

30 minutes chart of CL (Future contract), Cumulative Divergence Delta. Source: Author's analysis

Cumulative Divergence Delta on 30 minutes chart of CL (Future contract),  source: author’s analysis

This underlines the possible speculative short selling “talks” from some analytics. The fact is that despite the fear of lower economic activity and lower demand for the commodity, the policy of producers tries to get crude oil higher price. OPEC+ fights via production cuts, which should make pressure on the commodity. The unemployment data from the USA keeps the market under less stress. Higher employment could cause future high consumer spending and higher demand for crude oil. 

Wildfires in Canada

The current wildfires in Canada push people to evacuate 30,000 people. There are more than 100 blazes, of which 27 are defined as out of control. Wildfires endanger gas and crude oil pipelines and wells, therefore the production and logistics of these commodities were stopped. That means a cut of 145,000 barrels a day.

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This cut in production from one of the biggest crude oil exporters, Canada, could cause a current resurrection of the commodity these days. This undermines the speculation of pure technical correction on the markets. 

All of these data and weather conditions, producing policies, and technical indicators only underline one pure fact, enormous volatility. From last Thursday’s open the price of crude oil elevated almost 16%, above the level of $73 per barrel. 

Tomas is a professional trader and money manager on foreign exchange market from 2014. His main domain are commodities. Experiences gained due this period are transformed to consul...

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