Oil Inter-market: Fresh selling could emerge if volatility remains elevated

During the last two trading sessions of the week WTI crude oil prices took a sharp knock, dropping back below $50.00/barrel mark and posting a loss of over 3.5% from nearly one-year high level of $51.65 touched on Thursday. 

The initial profit-taking move to $50.60-50 balance area was led by a broad-based recovery in the US Dollar, as measured by the overall US Dollar index. Subsequent weakness was driven by the prevalent risk-off sentiment across global financial markets, as depicted by a sudden spurt in the Volatility index (VIX) that has been the key factor also driving the broader US equity index, S&P 500, lower. 

Meanwhile, jittery global financial markets forced investors to rush towards the perceived safety of sovereign bonds, pushing yields to new lows across the world. The spill-over effect dragged yields on US treasuries to multi-month lows and provided additional reason to take money out of the dollar-denominated commodities, like oil. 

Moreover, investors now seems to turn more cautious as move closer to the much awaited Federal Reserve meeting on June 14-15 and the so-called 'Brexit' vote on June 23. A prolonged period of global risk aversion sentiment should keep the US Dollar and VIX elevated and trigger a near-term corrective move for S&P 500 alongside weakness in crude oil prices, possibly towards $48.50 support area.