Another major sell-off hits oil market

Summary:
- Another piece of weak data from the Australian housing market
- Number of factors pressure oil prices
- Key EU politician sees Jens Weidmann as proper successor to Draghi

Trading during the Asian session remained to be thin as Japanese and Chinese traders stayed away from the market for another day. However, stock exchange in Australia operated in line with a normal schedule and the S&P/ASX 200 (AUS200) index closed 0.08% higher. Such a development can be to some extent ascribed to weaker Australlian dollar. Aussie took a dive lower following the release of building approval data for March. Building approvals dropped 15.5% MoM while markets expected a drop of 12.5 % MoM. In response, AUDUSD broke to the lowest level since 3 January 2019. However, much of this loss was later on erased. Weakness on the Australian housing market has been present for some time already and it has been addressed by the Australian central bankers a few times. The Reserve Bank of Australia is scheduled to meet next Tuesday (7 May 2019) so we may get more comments on the data. Keep in mind that money market is giving 40% chance for a rate cut during the upcoming meeting and given the latest disappointing data it may have a point.

AUDUSD trades in the vicinity of key, psychological level of 0.70. The pair has been trading within a downtrend for a major part of 2018 and later fell into consolidation range with 0.7050 handle acting as a floor. A break back above the 0.70 handle would more than desired by buyers but high expectations of a rate cut in Australia may make it hard. Source: xStation5

Bulls from the oil market are likely to see crude end the week lower following yesterday’s steep declines. A number of reasons contributed to the sell-off. Firstly, the latest DOE report showed a major build of 9.9 million barrels in the US oil inventories. In turn, the US stockpiles are now on the highest level in two years. Secondly, China, a major buyer of the Iranian oil, is said to be asking Saudi Arabia to takeover deliveries after extension to sanction waivers was not granted. However, the biggest factor contributing to the recent drop could have been news from Russia. Uncontaminated crude arrived on Belarus hinting that the pipeline problems are close to being resolved. This is a kind of relief for countries from Europe as lack of Russian crude could have serious consequences for the growth there. Second piece of news from Russia concerns OPEC+ output cut agreement. Namely, Russia once again missed agreement targets in April. The fourth month of 2019 was said to be the first one when Russia compiles but it did not happen. All of these factors combined pushed both grades of crude around 3% lower yesterday.

Price of Brent (OIL) dropped significantly since the peak in the middle of the previous week. Following two steep drops this grade of crude is trading near the lower limit of the support zone ranging $70.40-71.10. Note that in case bears manage to break below, the next relevant support may be found at the 200-session moving average (purple line on the chart above). Source: xStation5

In other news:
- European Commission President Jean-Claude Juncker said to view Jens Weidmann as appropriate candidate to succeed Mario Draghi
- Stephen Moore, Donald Trump’s candidate for the Fed Board of Directors withdrew from consideration for the job

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