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Crude Oil Prices Spike Lower as Volatility Fuels Risk Aversion

 The price of petroleum slid sharply lower on Wednesday alongside other risk assets like major stock indices. Markets appear as if a sea of red as trader sentiment deteriorates broadly while coronavirus lockdowns mount across Europe. This has led to a surging measures of volatility and immense selling pressure across petroleum prices, which largely seems to follow worsening prospects for economic process and corresponding slide in inflation expectations.

Specifically, petroleum prices have snapped back toward month-to-date lows because the S&P 500-derived VIX Index, or fear-gauge, explodes to its highest level since June. The VIX Index and petroleum price action generally maintain a robust inverse relationship as illustrated within the chart above. thereto end, petroleum could face further selling pressure if the VIX Index extends its advance as risk aversion takes hold.

The steep drop notched by petroleum has steered the commodity back to a critical technical support zone round the $36.75-price level. This potential area of buoyancy is underpinned by a confluence of month-to-date and September lows, the 200-day simple moving average, also as a positively sloped trendline connecting the string of upper lows notched on 15 June, 08 September and 02 October.

Failure to take care of this key price could motivate petroleum bears to form a subsequent push toward the $34.25-price mark before the $31.00-handle comes into focus because the next possible target. Conversely, a relief bounce could be future if petroleum bulls can defend and springboard off the aforementioned price back toward the 20 October swing high, but rebound attempts might be undermined by the 50-day SMA.