Examining Crude Oil’s Massive Dip

Prior to this week, crude oil had been on a tear, as it had steadily been gaining ground for quite some time. Between May and September the fossil fuel jumped up roughly 22%, as it had just gotten over a crushing blow that began in the beginning of 2012. But just as it looked like crude was making its way towards triple-digit figures, it got stopped in its tracks, as this commodity began tumbling this week. In just three days, this asset fell more than 7%, leaving many investors scratching their heads trying to figure out how it racked up such losses [for more crude oil news and analysis subscribe to our free newsletter].

The trouble started Monday when crude quite suddenly shed nearly $4 in 15 minutes of trading, leaving investors to scramble and accelerate the selling pattern. Last week showed that U.S. crude stockpiles jumped by more than 8.5 million barrels, way over the predicted 1 million. But market euphoria from Ben Bernanke’s QE3 announcement was able to push virtually every asset higher. Then came time for crude to fall. Monday’s massive sell off started with one major trade of someone who simply decided to get out of the market. Right away stop-losses were triggered and things snowballed from there. If you blinked, you missed it, as the commodity took a swift nose dive.

But the hits kept coming, as traders and investors continue to worry about demand from the U.S., who is by far the largest consumer on an annual basis. With that in mind, crude endured two more rough days until it was finally able to muster up some gains during Thursday’s session. As we enter the winter months and crude oil demand will likely draw back a bit, it would not be surprising to see this asset continue to struggle. The summer months are typically the best for crude oil as people are more willing to drive and gobble up the fossil fuel [see also 25 Ways To Invest In Crude Oil].

Of course, the recent conflicts in the Middle East certainly threaten to shake things up a bit. As tensions persist between the U.S. and some of the largest oil producers in the world, crude oil will likely remain extremely volatile. Investors will also want to keep a close eye on the Keystone XL Pipeline project and the upcoming elections, as each Presidential candidate has a different timeline for green-lighting the project. Once it is put into place, the massive oil flowing into the U.S. could have a significant impact on the price and trading of WTI.

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Disclosure: No positions at time of writing.

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