Crude Oil Bulls Got Their Rate Cut. And... Oil Prices Crashed 8.1% in One Day?
There's only one explanation for oil's 8% drop on August 1 that really makes sense
by Nico Isaac
Updated: August 01, 2019
For crude oil bulls, August 1 was a perfect example of being careful what you wish for.
Just one day earlier, energy traders had their eye on a single news event as the perfect catalyst for a move higher in oil: an interest rate cut by the Federal Reserve Board at their July 31 Federal Open Market Committee meeting.
On July 31, at 1:40 PM -- just 20 minutes before the 2PM FOMC press release revealed the central bank's decision -- this MarketWatch article captured the high hopes for lower rates:
"Oil Bulls Look to Fed Rate Cut to Overcome Demand Worries... When it comes to the oil prices, market bulls are hoping Jerome Powell and his band of Federal Reserve policy makers can do what falling U.S. crude inventories and rising geopolitical tensions haven't managed by giving crude a lasting kick higher...
"A Fed cut -- and the central bank's communication efforts regarding the outlook for additional easing -- could help turn the tide."
What happened next?
Well, at 2 PM Fed chair Jerome Powell announced the Fed's first rate cut since 2008. It was exactly what oil bulls wanted. And yet -- this chart below shows that instead of jumping for joy, oil prices crashed a staggering 8.1% on August 1.
Mainstream analysts' explanation for the move was as follows: Yes, the Fed cut rates, but it didn't say it would do it again. Wrote one news source:
"Crude oil drops sharply after US Federal Reserve dampened hopes for a string of rate cuts." (CNBC)
There is, however, one way in which oil's August 1 collapse makes sense.
On July 31, our Energy Pro Service posted this bearish update -- at 8:49 AM, hours before the Fed's 2 PM rate cut announcement:
"The upside follow-through in overnight activity should put the market in the final throes of a countertrend advance...
"Trade below 55.81 (aggressively 58.21) should be a good indication that...decline is underway.
"The next big downside hurdle is September's 54.85 swing low..."
Note that downside price target: $54.88. The next chart captures crude's 8% crash, pulled directly from our August 1 Energy Pro Service intraday analysis:
Where crude oil prices will go from here won't depend on central bank policy.
Rather, it's the Elliott wave price pattern taking shape directly on the market's chart that will determine oil's trend. With its daily and intraday updates, our Energy Pro Service can help you stay ahead of it.
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