|

Oil intermarket: DXY and oil highly correlated, can WTI thus bounce back?

Despite the DXY back below the 98 handle today, oil prices dropped sharply again today and continued the decline from supply since the 12th April.

US Dollar approaches multi-month lows below 99

However, today's decline was $2.5c so far from a high of 45.60 to a low of 47.75 in WTI and more than a 5% move. The reason for the decline stays with expectations for a recovery in Libyan crude production as well as rising U.S. output setting prices up for their lowest finish since November. 

This move comes after an initial bounce today when three OPEC delegates said the supply quotas are likely to be extended into the second half of the year although that did not necessarily mean that there would be an increase the size of the cuts. Casting minds back as far as yesterday, we had the U.S. government data that showed weekly domestic crude production had risen while inventories fell less than expected. This already was deepening the scepticism around production cuts from the Organization of the Petroleum Exporting Countries.

However, in other news, the BBC had reported yesterday that two of the largest factions in Libya have made progress in reaching a deal to resolve the nation’s political and economic crises that had been causing intermittent shutdowns of Libya’s biggest oil field. With progress in Libya, it is said that the troubled nation could otherwise recover back to producing  1.5 million bbls per day in a matter of just a few months while excluded from OPEC quotas. We will have to wait to when OPEC is set to decide on the extension into the second half of the year when the organisation actually meets on May 25 in Vienna. 

In respect to levels, the price broke below a key rising supporting level when it broke and closed below the 48 handle. 44.70/80 is the next meaningful support line guarding 44.40 28th Nov low and 43.20. To the upside, the 200 EMA is located at 49.14 and stands as a key target for a more neutral price in WTI. In respect to the DXY, the last time it was this low, WTI was supported at 48.80 for a number of days and comes as key upside target in the near term for a potential break and test of the aforementioned daily 200 EMA.

Author

Ross J Burland

Ross J Burland, born in England, UK, is a sportsman at heart. He played Rugby and Judo for his county, Kent and the South East of England Rugby team.

More from Ross J Burland
Share:

Editor's Picks

AUD/USD recovers toward 0.7000 amid improving mood

AUD/USD is firming up toward 0.7000 in Asia on Tuesday, helped by improving market mood. A pause in the US Dollar rebound also aids the pair's upside. However, geopolitical risks and caution ahead of AI tech earnings report could limit the pair.

USD/JPY flatlines near 158.50 as markets seek direction

USD/JPY steadies around 158.50 in the Asian trading hours on Tuesday. Traders prefer to wait on the sidelines ahead of Japan’s National Consumer Price Index inflation data later on Friday. Meanwhile, elevated US bond yields provide some support to the US Dollar against the Japanese Yen.

Gold extends losses as rising Oil prices reinforce Fed rate hike bets

Gold (XAU/USD) drifts lower on Tuesday, extending losses for a third consecutive day as rising Oil prices linked to tensions in the Middle East keep global inflation risks tilted to the upside, reinforcing expectations that interest rates will remain higher for longer.

Crypto Today: Bitcoin, Ethereum, XRP tick lower amid mixed ETF flows

Bitcoin is trading above $81,000 on Tuesday, aligning with a lethargic tone in the broader cryptocurrency market. Altcoins, including Ethereum and Ripple, reflect Bitcoin’s lock-step price action, trading below $2,400 and $1.30, respectively.

Markets at a turning point: Bitcoin, Gold, FX and Tech react to a heavy macro week

The new trading week opens with a mixed but revealing picture across global markets. Indices, commodities, FX, tech stocks, and cryptocurrencies are all sending one message: risk appetite is alive, but it is cautious, selective, and highly sensitive to macro signals.

The US Dollar fell. Gold didn't rally. That tells you everything
Gold (XAU/USD) is struggling to capitalize on a weaker US Dollar (USD), after repeatedly failing to establish itself above the $4,200 level. The precious metal remains confined to a relatively narrow trading range despite a combination of developments that would normally support higher prices.