Oil, one of the most-favored reflation trades, just took a heavy beating. Prices headed for the biggest weekly slump since October after a sell-off driven by concerns that recent gains had been too rapid given mixed signals about near-term demand and a rising dollar.
Futures in New York fluctuated after a five-day slide that culminated in a more than 7% plunge on Thursday. Prices have been hurt by a surge in Treasury yields that pushed the dollar higher, signs of softer near-term demand in Asia, and a gain in U.S. stockpiles. The unwinding of long positions by some commodity trading advisors may also have played a role, as well as technical signals.
“The futures market in recent weeks has got a bit ahead of itself, particularly when you compare it to the physical market, which has shown signs of weakness,” said Warren Patterson, head of commodities strategy for ING Group. “I still hold a constructive view for the market in the medium term. However, in the near term I believe that upside is limited.”
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