Oil fell sharply late in the session, cracking a key support level and closing at a 2 1/2-year low.
West Texas Intermediate bounced back and forth between positive and negative territory around the $80 dollar level for most of the session, before settling $78.78 per barrel.
One of the most important factors impacting crude at the moment is the continued strengthening of the dollar. With the dollar index above $87 and projected to rise, many traders believe crude oil futures will continue to decline.
"Today's action was all dollar strength," said Peter Amandio of Chicago Energies. Amandio said the key levels on WTI were $79.45 and $79.05, the intraday lows for last week and the previous week. "Settlements under these levels will trigger a technical cascade lower."
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In addition, reports that Saudi Arabia raised its oil price to the Far East by 95 cents sent Brent futures slightly higher before they settled under $85. But news that it also cut its price to the U.S. by 45 cents put WTI back in negative territory.
"This is what sparked the selloff last month … when Saudi cut the prices aggressively to Asia," said John Kilduff of Again Capital. "This means that, obviously, they're not as concerned about supply since they've seen a pickup in demand."
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Many have been speculating that at its Nov. 27 meeting OPEC might cut production to curb recent price declines in crude. Kilduff says that he thinks OPEC won't take any action in November because not only can the cartel withstand further price declines, but it also wants to pressure U.S. suppliers to scale back their production.
"The Saudis are betting on the fact that winter season demand is going to bail them out," Kilduff said. "The proof is in the pudding with this price cut that they're feeling more confident about the market."