Oil sinks as US yields soar above 5% as recession fears spike
- Oil (WTI) trades below $87.00 and drops lower as markets see tensions ease in the Middle East.
- The US Dollar closed in the red last week and is facing mild selling pressure this Monday.
- Oil could sink lower if the Israeli ground offensive could be completely cancelled due to international pressure.
Oil prices are retreating as US yields are soaring to new multi-year highs with the US 10-year benchmark rate trading above 5.05%, seen as the threshold where as of now, it will start to get even more difficult for US Treasury to refund and for the US economy to start facing a credit crunch. EU leaders meanwhile have issued a joint statement demand a long pause on the ground offensive in demand for more humane and humanitarian approach for the retaliation against Hamas. Little by little humanitarian help is being allowed on the field in Gaza, though several request have been issued by state departments from foreign countries, calling their citizens to evacuate the area in light of a possible massive ground offensive.
Meanwhile, The US Dollar (USD) is facing headwinds as it looks that its months-long rally has officially halted. Traders are bracing for two big data points later this week, with on Thursday the US Gross Domestic Product (GDP) numbers and on Friday the Fed’s preferred inflation gauge with the Personal Consumption Expenditures Index (PCE). A contraction or pullback in the numbers could mean another leg lower in the Greenback’s performance.
Crude Oil (WTI) trades at $86.92 per barrel, and Brent Oil trades at $90.31 per barrel at the time of writing.
Oil news and market movers
- Fund managers are betting on a higher Brent oil prices, as the long Brent trade is at the highest since 2016.
- Indian Oil refineries have processed 4.1% more crude in September than last year. Oil refiners in India processed 20.3 million tons of crude in September.
- Last week, Crude Oil prices rose for a second week in a row as markets continue to keep an eye on any supply disruptions in a spillover effect on the back of the Israeli ground invasion.
- Macquarie strategists have issued a report mentioning that there is a short-term upward risk in oil price, though in the medium-term oil prices are expected to head lower.
- China is tapping into its Crude Oil stockpiles as it looks to boost its refining production, recent data revealed.
Oil Technical Analysis: US yields are opening recession debate
Oil prices have had a second week of solid gains in their performance, though the rally starts to stall now. With again a delay in the possible ground invasion by Israel into Gaza, markets are starting to second guess if it will ever happen. This means a very big risk premium needs to be priced out, which could mean more downside risk in the balance for Crude prices.
On the upside, the resistance level near $88 is the first level on the bulls’ radar. From there, the next level will be this year’s high at $94. Should a substantial squeeze unfold, look for $97.11, the high of August 2022.
On the downside, traders are bracing for the entry of that region near $78. The area should see ample support for buying. Any further drops below this level might see a firm nosedive move, which would cause Oil prices to sink below $70.
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US Crude (Daily Chart)
WTI Oil FAQs
What is WTI Oil?
WTI Oil is a type of Crude Oil sold on international markets. The WTI stands for West Texas Intermediate, one of three major types including Brent and Dubai Crude. WTI is also referred to as “light” and “sweet” because of its relatively low gravity and sulfur content respectively. It is considered a high quality Oil that is easily refined. It is sourced in the United States and distributed via the Cushing hub, which is considered “The Pipeline Crossroads of the World”. It is a benchmark for the Oil market and WTI price is frequently quoted in the media.
What factors drive the price of WTI Oil?
Like all assets, supply and demand are the key drivers of WTI Oil price. As such, global growth can be a driver of increased demand and vice versa for weak global growth. Political instability, wars, and sanctions can disrupt supply and impact prices. The decisions of OPEC, a group of major Oil-producing countries, is another key driver of price. The value of the US Dollar influences the price of WTI Crude Oil, since Oil is predominantly traded in US Dollars, thus a weaker US Dollar can make Oil more affordable and vice versa.
How does inventory data impact the price of WTI Oil
The weekly Oil inventory reports published by the American Petroleum Institute (API) and the Energy Information Agency (EIA) impact the price of WTI Oil. Changes in inventories reflect fluctuating supply and demand. If the data shows a drop in inventories it can indicate increased demand, pushing up Oil price. Higher inventories can reflect increased supply, pushing down prices. API’s report is published every Tuesday and EIA’s the day after. Their results are usually similar, falling within 1% of each other 75% of the time. The EIA data is considered more reliable, since it is a government agency.
How does OPEC influence the price of WTI Oil?
OPEC (Organization of the Petroleum Exporting Countries) is a group of 13 Oil-producing nations who collectively decide production quotas for member countries at twice-yearly meetings. Their decisions often impact WTI Oil prices. When OPEC decides to lower quotas, it can tighten supply, pushing up Oil prices. When OPEC increases production, it has the opposite effect. OPEC+ refers to an expanded group that includes ten extra non-OPEC members, the most notable of which is Russia.
Author
Filip Lagaart
FXStreet
Filip Lagaart is a former sales/trader with over 15 years of financial markets expertise under its belt.
