Oil prices have ended the month at levels near US$69 per barrel. Growing concerns that the financial crisis in Europe could weaken global economic recovery and demand for crude oil has resulted in crude oil falling by about 20% this month after peaking to an 18-month high of US$87.15 on May 3.
Crude oil declined as European governments struggled to contain the regions’ debt crisis, raising concern that it will slow the global economic recovery. Oil prices have also been more vulnerable to a price drop than other markets because of high supply levels, especially at the key U.S. bottleneck in Cushing, where data this week showed a continued rise in stockpiles.
Hedge funds sold oil at the fastest pace in almost eight months, cutting their bullish bets by 32 percent.
The market is abound with fears that deep government spending cuts in Greece, Spain, Italy and Portugal to fend off a debt default will hurt economic growth in Europe.
Oil's drop comes as investors shed risky assets, and all markets including oil, other commodities and stocks, on renewed fears that the global economy may stumble on the path to recovery. The prices may trade sideways in the short term with upside bias as it can show some short covering after recent plunge in prices.
Crude oil has witnessed a steep slide this month, following a significant rise in dollar against a basket of currencies. This fall has provided no respite to traders holding long positions as it has been spearheaded by growing concerns about demand and euro zone crisis.
The black gold in this downward rally has now again come in the vicinity of the same level of $68.70/bbl, from where it instituted the rally in the month of December 2009, forming a double bottom pattern at the same.
Till the time, counter is able to close above the same; this level is expected to provide some relief to the bulls and can lead to some recovery, towards the levels of around Rs3530/bbl and then possibly Rs3650/bbl in MCX and around Rs78/bbl in Nymex.
However one has to be cautious about the support level, as any breach of this may result in inevitable slide towards Rs2900-2880/bbl, which is the next crucial ground level for the counter.
