China Stocks Have Crude Investors Panicking…
China Stocks Pressuring Oil…
No doubt about it, the oil market has been hammered in recent trading.
The price of West Texas Intermediate (WTI) crude fell as much as 17% from the June highs the past few days as traders fretted over high supply, the Greek debt debacle, and worrisome trading in China stocks.
Take a look…
As you can see, the crude selloff is swift and unforgiving. Once WTI broke below range support at the $56.75 a barrel area (red line) on July 6th, it was all over. Bears took control, sending the commodity plunging toward the $50 mark.
Before we discuss what’s next for crude oil, let me back up a second…
One of the reasons I gave for the recent crude downturn was worrisome trading in China stocks.
Let’s dig a bit deeper into that vague statement…
Over the past few weeks, Chinese markets have taken a dramatic turn for the worse. The Shanghai Composite Index is suffering a brutal 30% downturn since June 15th.
This chart says it all…
The precipitous Chinese stock market pullback has oil investors worried. You see, China’s stock market regulators are taking substantial steps to stem the selling- yet nothing seems to be working.
The sudden uncertainty has some analysts suggesting China’s stock market is a bubble in the process of popping.
If that’s the case, there’s a good chance the recent market turmoil works its way into the real Chinese economy.
That would be a highly bearish development for the oil market.
Why?
China is one of the world’s largest importers of crude oil. Earlier this year, the country actually took the number one spot away from the US for a short time.
But with China’s growing stock market uncertainty, there’s a palpable threat to those imports. If the country’s real economy feels the effects of the recent stock market downturn, GDP growth could swoon to the lowest point in the past 24 years.
Such a situation would put the oil market on its ear!
Remember, the global crude market is already suffering from excess supply. Less demand from China will only magnify the problem.
And that’s not all…
The Greek debt debacle appears to be reaching a climax. The highly indebted nation now has until Sunday to reach an agreement with its creditors. If a deal isn’t reached to keep Greece in the Eurozone, a substantial increase in market volatility awaits.
I hate to say it, but the bearish bullet points are building quickly for oil.
Given the current situation, another dip into the high $40 a barrel range seems likely.
If things really get out of hand in China and Greece, the $30 a barrel range isn’t out of the question either.
How do you profit from oil market volatility?
There are a number of crude focused commodity ETFs allowing traders to profit from the oil market- without the need for a complicated futures account. You’ll find an in-depth list of them here and here.
Until Next Time,
Justin Bennett
BIO: Justin Bennett is the head commodity research analyst at Commoditytradingresearch.com. With over a decade of real world trading experience, he finds ways for you to consistently profit from movements in commodities and the companies producing them. Sign up for our free reports and commodity newsletter at https://commoditytradingresearch.com/free-sign-up.
