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After A Sell-Off, What's Next For Oil?

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After A Sell-Off, What's Next For Oil?

After hitting a multiyear high just one month ago, U.S. light crude has lost nearly 20 percent and has shown a pattern that hasn't been seen in some time, according to energy expert John Kilduff.

Rare Correlation To Stocks

Crude oil and other commodities are historically an asset class for investors to "get away" from the stock market, Kilduff told CNBC in an interview this week.

Yet over the past 20 trading sessions, oil and stocks both peaked in early October and both have lost nearly 10 percent through the end of the month.

The two asset classes recorded a correlation rate of around 80 percent, which is the highest level seen since early 2016 and during the financial crisis around 10 years ago, he said. Oil has become a risk-off trade and is being negatively impacted by the same factors hurting stocks, including worries of a global economic slowdown, the Federal Reserve tightening its policies, trade concerns and rising dollars.

Iran Sanctions

The oil market has a bullish catalyst ahead as U.S. actions against Iran will become official Sunday, Kilduff said. While it is unclear to what extent the impact will have on global oil markets, it could pave a path for a rebound in oil prices toward the $75-per-barrel level by the end of the year.

On the other hand, media reports are suggesting that eight countries will be granted waivers for Iran oil imports, which implies the potential for upside oil supply in the market versus expectations, Alan Gelder of Wood Mackenzie separately told CNBC. If Iran's output falls by 1 million barrels per day under the new sanctions, other OPEC and oil-producing countries can make up the shortfall, he said. 

If the reports of a waiver are untrue and all of Iran's oil output is sanctioned by the U.S., then it could be a problem for the global oil market, he said.

Related Links:

Is $100 Oil Imminent? This Pro Says Geopolitical Events Could Make It Happen

Expert: Iranian Sanctions, Trump Demands Make For 'Murky' Oil Market

 

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