OIL : Spike Lower

(Thu, 29 Oct 2020). The price of crude oil slid sharply lower on Wednesday alongside other risk assets like major stock indices. Markets look like a sea of red as trader sentiment deteriorates broadly while coronavirus lockdowns mount across Europe. This has led to a surging measures of volatility and immense selling pressure across crude oil prices, which largely seems to follow worsening prospects for economic growth and corresponding slide in inflation expectations.

Specifically, crude oil prices have snapped back toward month-to-date lows as the S&P 500-derived VIX Index, or fear-gauge, explodes to its highest level since June. The VIX Index and crude oil price action generally maintain a strong inverse relationship as illustrated in the chart above. To that end, crude oil could face further selling pressure if the VIX Index extends its advance as risk aversion takes hold.

The steep drop notched by crude oil has steered the commodity back to a critical technical support zone around the $36.75-price level. This potential area of buoyancy is underpinned by a confluence of month-to-date and September lows, the 200-day simple moving average, as well as a positively sloped trendline connecting the string of higher lows notched on 15 June, 08 September and 02 October.

Failure to maintain this key support level could motivate crude oil bears to make a subsequent push toward the $34.25-price mark before the $31.00-handle comes into focus as the next possible target. Conversely, a relief bounce might be in store if crude oil bulls can defend and springboard off the aforementioned support level back toward the 20 October swing high, but rebound attempts could be undermined by the 50-day SMA.

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