Commentary: Crude oil fell notably for the third day in a row, shedding $2.29, or 2.92%. Over the last three sessions, the commodity has lost $5.74, or 7%. Weak economic data, especially out of the U.S., has challenged the optimism that was developing in financial markets. Whether the recent sell-off is merely a correction of the significant rally off the May and June bottoms or the start of a new down leg remains to be seen, and will be dependent on the course of the economic data going forward. Without a doubt, financial markets have priced in a lot of bad news, but a double dip recession would likely send equities and crude oil to new 52-week lows if it came to pass. Moreover, with regard to crude oil specifically, supply remains abundant with elevated inventory levels and OPEC production at levels adequate to supply the market comfortably for at least 2010 and 2011 per the International Energy Agency.

Technical Outlook: Prices have taken out support at the bottom of a rising channel set from the low in May to meet the 38.2% Fibonacci retracement of the 5/20-8/4 rally at $75.82. Continued weakness threatens the 50% Fib at $73.60.

Tags | correction, double dip, fibonacci