Crude Drops on USD Rally

Oil prices continue to trade lower this week as a resurgent US Dollar and hawkish Fed expectations weigh on sentiment. Crude futures have slipped by almost 4% this week and are currently testing the lows of the month. We’ve heard plenty of pushback from the Fed this week against heightened easing expectations on the back of last week’s CPI print. Several embers have warned that rates need to remain at current levels for longer in order to bring inflation down. The FOMC minutes last night reaffirmed this viewpoint and added further hawkish risk with some members voicing support for fresh tightening unless inflation started to move lower again soon.

EIA Surplus Weighs on Sentiment

Away from the USD landscape, yesterday’s EIA data added further bearish pressure. US crude stores were seen rising to 1.8 million barrels over the week, in stark contrast to the 2.4-million-barrel drawdown forecast and a clear shift from the 2.5-million-barrel drawdown seen a week prior. With concerns over subdued US demand still a key issue for oil markets, this week’s data does little to inspire confidence. Looking ahead, there is growing speculation that OPEC will extend or deepen supply restrictions when it meets next week in order to try and lift prices from the current doldrums.

Technical Views

Crude

The sell off in crude has seen the market breaking down below the bull channel. Price is currently testing support at the 77.64 level and with momentum studies bearish, risks of a further drop lower are seen. Below here, a continuation of the local bear channel towards the 72.61 level is the next objective for bears. 

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