Today we are witnessing the market reacting to the huge drop off yesterday and China’s decision to drop interest rates by 25 basis points. OPIS reported that prices yesterday dropped to multi-year lows as questions about the state of China’s economy take center stage. As oversupply throughout the global markets continues to be a trend, now the market must confront China’s economic future and its impact on oil. OPIS also stated that if China's thirst for oil diminishes it will likely hurt Middle Eastern crude producers, especially Saudi Arabia. The Saudi’s have relied on Asia to buy the barrels they once sold to the U.S. that have been displaced by increased U.S. crude production.
West Texas Intermediate crude closed below $40/bbl yesterday, at $38.62/bbl, for the first time since Q1 2009. Over the last four weeks, WTI has plunged nearly $10/bbl, losing nearly 20% of its value. Overnight, WTI prices were finding some footing, after yesterday's tumble. Up more than a $1/bbl in the overnight session, WTI was around $39.30/bbl at press time. London-based Brent crude was also finding a bit of support, hovering around $44/bbl, up $1.50/bbl.
Keep in mind the famous Warren Buffett quote “when you hit rock bottom, the only way is up.” Then there is the old trading adage that “when the bulls turn bearish it is time to buy.”