Volatility as Saudi oil is attacked and China takes revenge

Crude oil prices exploded today while the commodities market was concerned about supply and demand concerns.

Let's start with the problems of supply. Even though the members of the Organization of the Petroleum Exporting Countries (OPEC) have lost some of the weight in the crude oil market now that the United States is producing so much crude through their successful fracturing efforts, which have been successful Saudi Arabia remains the country with the most resources. Gorilla book everyone pays attention to.

This weekend, Saudi Arabia announced that two of its tankers had been damaged during sabotage attacks near the Strait of Hormuz – a forced crossing point with Iran then that ships were coming out of the Persian Gulf. The attacks did not result in any environmental emergency, but they caused a shock wave in the global crude oil market. Traders began to worry that Saudi Arabia's oil supply would be disrupted by escalating trade disputes between the United States and Iran.

When supply is reduced or risk of being, the price of crude oil tends to increase. That's exactly what we saw early in the negotiations this morning. Crude oil has skyrocketed dramatically twice in the run-up to the opening bell of the stock market on Wall Street. However, rapid price increases are only the cornerstone of current crude oil volatility. From the opening of the stock market, crude oil prices began to fall.

To understand why, we must now look at the demand issues. It took a few days for China to take revenge for the tariff increases of the Trump administration, but that was the case on the other hand. China has increased tariffs on US goods from $ 60 billion to 25% as of June 1, to match the new US tariff rates. As the trade war between the US and China intensifies, traders fear a slowdown in the global economy. A slowdown in the global economy would not only dampen corporate income growth, but would also lower demand for crude oil.

Demand for crude oil tends to increase as the economy grows, as more people tend to be employed; more and more people usually have money to spend on the purchase of new cars, air travel and goods to be shipped around the world and throughout the country; and more and more consumers, businesses and governments tend to spend more on construction, which increases the use of construction and transportation equipment using fossil fuels.

The opposite occurs when the economy starts to slow down or contract. Demand for crude oil tends to decrease. When demand declines or is likely to decline, the price of crude oil tends to fall. That's exactly what we saw after the opening bell. Crude oil lost ground for most of the day as traders feared that demand would be affected by the escalation of the trade war.

At the present time, it appears that demand concerns outweigh the supply concerns in the crude oil market, but all this could change if tensions escalate between the states. United States and Iran or whether the United States and China mutually decided to destabilize their trade negotiations.

The S & P 500 has disappointed traders today by breaking below support at 2,816.94. This level served as a resistance during the consolidation of the index at the end of 2018, then at the end of February and beginning of March this year. I was looking at this level wondering if it would be considered a support, but there was not enough bullish resolution.

Unlike last two trading days last week, the bulls have not returned to the market in the last few hours to raise the index of its lows. Instead, the S & P 500 closed down 2.41% to 2,811.87, just a few points above its lowest level of the day at 2,801.43.

As with any bearish move that challenges support, I will be looking for whether Tuesday will generate a follow-up day or a rebound. All is not lost. It is too early to believe Henny Penny's speech that "the sky is falling". Let's see how the rest of the week takes shape.

Confirming how much Wall Street traders are nervous as a result of higher Trump administration rates and China's response to retaliation, the price of gold has risen above $ 1,300 an ounce today. This move is significant not only because it is the biggest bullish movement of a day in gold since February 19, but also because it invalidates the bearish reversal pattern of the head and shoulders made on April 16 by the precious metal.

The assets complete the bosses of the head and shoulders when they break below the price level that serves as a cleavage to the boss. Conversely, assets invalidate head and shoulder patterns when they return above the same price level.

Gold initially surpassed the bullish price level which had earned it a necklace of $ 1,290 a few weeks ago. This set a price target of around USD 1.223 for gold, based on the height of the highest part of the head and shoulders pattern. Today, gold has plummeted above the same bullish price level to $ 1,294 to invalidate the trading signal and the downside price target.

Gold is considered a safe haven asset – an outperforming asset in times of economic or market uncertainty. As the rhetoric of the trade war between the US and China intensifies, look for a growing number of traders to buy gold while they are looking to diversify their portfolios in order to Adapt to a growing risk.

As the weekend approached, most traders were hoping that Trump's tariff increases would be a catalyst for bringing the US and China closer to a trade deal. . These hopes were dashed when China announced its retaliatory strike.

Although past and current economic figures and profits still look solid, traders are beginning to worry that the trade war will negatively affect economic numbers and future profits. If these fears remain uncontrolled, we could see the S & P 500 return below the 2,700 mark before the end of the month.

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