Oil sinks despite geopolitical turmoil overhang

• Oil prices edge lower for a third straight day in a severe correction. 
• Traders are running for the hills while recession fears emerge. 
• The US Dollar Index trades sharply lower and enters a correction phase. 

Oil prices are sinking over 2% on Monday, with markets not getting a break after the turmoil at the end of last week. The Japanese stock market performance was a sign on the wall with its worst performance since 1987, with the Nikkei index sliding over 12% lower. Markets are scared that demand will start to shrink from here after a trifecta of very disappointing US data last week lit the fuse around recession fears. 

Meanwhile, the US Dollar Index (DXY), which tracks the performance of the US Dollar against six major currencies, is receiving one gut punch after another. In normal risk-off movements, the Greenback is considered to be the safe haven. Though, as it is the same US data that is sparking that risk-off, it does not make sense as an investor to hold on to that cash anymore and park their investments in safe bonds, with the outlook that those high yields are soon to come to an end after US Federal Reserve Chairman Jerome Powell opened the door for an interest rate cut in September. The question for this week is if markets are over-exaggerating, and this is an ideal buy-the-dip moment on all fronts. 

At the time of writing, Crude Oil (WTI) trades at $71.42 and Brent Crude at $75.19

Oil news and market movers: Do not forget the background

• Although Oil prices are selling off, Saudi Arabia is convinced that Asia will continue with growth and demand, and hikes its prices for that region for the first time in three months, Bloomberg reports. 
• Libya has started cutting production at its Sharara operation by at least 50,000 barrels per day to only 210,000, Reuters reports.
• Vortexa data shows that the amount of Oil afloat in tankers has fallen 31% from last week, which could point to a recent pickup in demand. 
• Overall, commodities are following suit with the global selloff, though losses look rather limited in the commodity space against the bigger losses in equities. 

Oil Technical Analysis: Keep your pants up

Oil price is painting deep red candles since last week and seems to continue that sentiment again on Monday. However, it does pay off to take a step back and look at the broader picture, where there are still many moving parts on the geopolitical front that could easily reverse the current decline in Oil price. Hence, it does pay off to approach these moves with a pinch of salt, certainly seeing the summer holidays and a lot of desks being understaffed as per normal period in the year, and adds to the nervousness of seeing less volume is present to soothe market reactions. 

On the upside, there is a chunky recovery to be had, though that could come swiftly. With the Relative Strength Index (RSI) being oversold, the first level to rebound to is the July 30 low at $74.24. Once back above there, $75.27 comes into play as the next pivotal level before heading back to the 200-day Simple Moving Average (SMA) at $78.03.

On the downside, expect this week’s moves to be on their last legs, as the RSI is nearing the end of the line. Look maybe for a test around $70.00 as a big psychological figure. A lot of buyers will be awaiting below that level to pick up some discount prices. The line in the sand is the blue line on the chart at $67.18, with that triple bottom formation from June 2023 as a hard support on the downside. 

US WTI Crude Oil: Daily Chart